INTERNATIONAL COMMERCIAL ARBITRATION AS AN ALTERNATIVE DISPUTE SOLVING MECHANISM AND

ITS ROLE IN THE TURKISH JUDICIARY SYSTEM

The Institute of Economics and Social Sciences of

Bilkent University

by

SİNAN ÖNCEL

In Partial Fulfilment of the Requirements for the Degree of MASTER OF ARTS

in

THE DEPARTMENT OF INTERNATIONAL RELATIONS

BİLKENT UNIVERSITY ANKARA

September 2006

I certify that I have read this thesis and have found that it is fully adequate, in scope and in quality, as a thesis for the degree of Master of Arts in International Relations. ……………………………………….. Assistant Professor Nur Bilge Criss Supervisor

I certify that I have read this thesis and have found that it is fully adequate, in scope and in quality, as a thesis for the degree of Master of Arts in International Relations. ……………………………………….. Assistant Professor Pınar İpek Examining Committee Member I certify that I have read this thesis and have found that it is fully adequate, in scope and in quality, as a thesis for the degree of Master of Arts in International Relations. ……………………………………….. Assistant Professor Aylin Güney Examining Committee Member

Approval of the Institute of Economics and Social Sciences ……………………………………….. Professor Erdal Erel Director

ABSTRACT

INTERNATIONAL COMMERCIAL ARBITRATION AS AN ALTERNATIVE DISPUTE SOLVING MECHANISM AND ITS ROLE IN

THE TURKISH JUDICIARY SYSTEM

ÖNCEL, Sinan

Department of International Relations

Supervisor: Asst. Prof. Nur Bilge Criss

September 2006 Globalization has been leading to enormous changes in the world order and economy. Global market economy needs a legal system to define and protect the rights of both national and international investors against unjust competition and jurisdiction.As one of the main pillar of globalization, free movement of capital and security of capital is vital for the international investors. Legal aspect of securitization of capital is very significant especially when a dispute arise between foreign investors and state due to mistrust to local courts and complexity of the legal system. Hence, international commercial arbitration became an alternative dispute settlement mechanism. In this study, after introducing milestones for the development of international commercial arbitration in 20th century, main features and international arbitration institutions and their rules are focused to demonstrate international structure and arbitration models. On the basis of international dimension of the issue, the role and function of international commercial arbitration in Turkish Judiciary System is elaborated through focusing on Constitutional amendments, laws and legal interpretations. While concentrating on Turkish legal system, concession agreements will mainly stressed through some cases. In this study, concept of public interest and debate on “foreign element” are also covered. Key Words: Arbitration, Globalization, Legal Security of Capital, Turkish Arbitration System iii

ÖZET

UYUŞMAZLIKLARIN ÇÖZÜMÜNDE ALTERNATİF OLARAK ULUSLARARASI TİCARİ TAHKİM VE TÜRK YARGI SİSTEMİNDEKİ

ROLÜ

ÖNCEL, Sinan

Uluslararası İlişkiler Yüksek Lisans

Tez Danışmanı: Yard. Doç. Dr. Nur Bilge Criss

Eylül 2006 Küreselleşme dünya düzeni ve ekonomisinde çok büyük değişikliklere öncülük etmektedir. Küresel piyasa ekonomisi, hem ulusal hem uluslararasi yatırımcıların adil olmayan rekabet ve yargılama karşısında haklarının belirli olduğu ve korunduğu bir yasal sisteme ihtiyicaç duymaktadır. Sermayenin yasal açıdan korunması özellikle yatırımcılar ve devlet arasında doğabilecek bir ithilaf durumunda yerel mahkemlere güven duyulmaması ve yasal sistemin karmaşıklığı nedenleriyle önem kazanmaktadır. Bundan dolayi uluslararası ticari tahkim ithilafların çözümü için alternatif bir mekanizma olmuştur. Bu çalışmada, uluslararası ticari tahkimin 20. yüzyildaki gelişimindeki kilomete taşlarının sunulmasından sonra uluslararası ticari tahkimin özellikleri, uluslararası kurumlar ve bu kurumların kuralları üzerinde uluslararası yapıyı göstermek için durulmaktadır. Konunun uluslararası boyutu esas alınmak suretiyle, uluslararası ticari tahkimin Türk Yargı Sistemi’ndeki rolü, işlevi de Anayasal değişiklikler, yasalar ve içtihat ile değerlendirilmektedir. Türk Yargı Sistemi’ne konsantre olunurken, esas olarak bazı örneklerle imtiyaz sözleşmeleri üzerinde durulmaktadır. Ayrıca bu çalışma kamu menfaati kavramını ve “yabancılık unsuru” tarışmalarını kapsamaktadır. ANAHTAR KELİMELER: Tahkim, Küreselleşme, Sermaye Güvenliği, Türk Tahkim Sistemi

iv

AKNOWLEDGEMENTS

If this thesis could reappear after five years time, without a doubt, I owe to Assistant Professor Nur Bilge Criss who encouraged me to finalize this study. Her goodwill was the sole element to make this thesis a reality. Her incisive review of my study contributed to improve the quality of this thesis. I sincerely express gratitude to her for giving me energy and motivation to complete this study and for the opportunity to study with her as her student after many years. I also wish to thank Assistant Professor Pınar İpek and Assistant Professor Aylin Güney for their warm reception and constructive comments in the Examining Committee. Lastly, I am grateful to Müge Keller, who has been supporting and helping me personally and academically for almost ten years. Her patience and goodwill also contributed to make this thesis a reality.

v

TABLE OF CONTENTS

ABSTRACT...................................................................................................... iii ÖZET................................................................................................................ iv ACKNOWLEDGMENTS................................................................................ v TABLE OF CONTENTS................................................................................. vi CHAPTER I INTRODUCTION............................................................................ 1 CHAPTER II..................................................................................................... 7

21 The Development of International Commercial Arbitration in the 20th Century..................................................................... 11

CHAPTER III................................................................................................ 15 3.1 Features of International Commercial Arbitration.................... 15 3.2 Sovereign Immunity and International Arbitration ………….. 19 3.3 Major Models and Institutions in International Commercial Arbitration……………………………………………………. 21 3.3.1 UNCITRAL as a Model Law………………….. 23 3.3.2 International Chamber of Commerce Arbitration 27 3.3.3 International Centre for Settlement of Investment Disputes………………………………………... 29 CHAPTER IV……………………………………………………………….. 33 4.1 The Background of the International Commercial Arbitration in the Turkish Judiciary System……………………………... 33 4.2 The Regulation of the Turkish Constitution………………… 42

vi

4.2.1 Public Interest and Order……………………… 55 4.3 Turkish Laws and Procedures of the International Commercial Arbitration……………………………………………………. 59 4.3.1 The Statue on the International Private and Procedural Law (MÖHUK)……………………. 60 4.3.2 The Law on the Procedures of Application of International Arbitration in Administrative Concession Contracts (Law No. 4501) 64 4.3.3 The International Arbitration Law……………. 65 CHAPTER V CONCLUSION…………………………………………… 70 SELECTED BIBLIOGRAPHY………………………………………….. 76

vii

1

CHAPTER I

INTRODUCTION

The role of economics in international relations is flourishing since the end

of the Cold War. The new markets, resources and geographies have been integrating

into the world system. Economic partnership and integration is at its peak at the end

of the bipolar system. In the last twenty years globalization has been leading to

enormous changes in the world order. Although there are many obstacles for the new

global order as well as for liberalization of capital, foreign investment and capital

have become the locomotives of globalization. Almost all states including the former

socialist ones have opened up their economies to foreign investors and capital. The

motives of the states are unemployment, insufficient national capital, minimizing the

role of the state in the economy and integrating their economies to the new global

order. On the other side, foreign investors have their own motives that are

intersecting with the states’ motives. There is no doubt that profit is the most

important motive of the capital owners.

Security of capital and liberal capital movements are also vital for the

international investors. There are multiple prerequisites for attracting foreign capital

and investments but in this study the regulatory structure is our primary concern.

2

The legal aspect is very important especially in cases of disputes which may arise

from the agreements between foreign investors and the state because of mistrust to

the national courts due to the unfair advantage of states1. In this respect, the

international commercial arbitration appeared as an alternative method for solving

disputes between states and foreign investors as part of securitization of the capital.

Arbitration is an ancient methodology for dispute solving especially in

commercial matters. In basic terms international commercial arbitration is the

settlement of a dispute based on the agreement of the parties of a contract by the

authority of arbitrators.2 International commercial arbitration is not only applicable

between private entities but also between private entity and sovereign states. When

private entities and foreign governments interact commercially, and dispute arises,

the predominant concern is that the state may claim immunity from private lawsuits

based on the principle of sovereign immunity.3 However the absolute understanding

of sovereign immunity has been changing along with globalization.

From the beginning of the industrial revolution, state capitalism emerged due

to the lack of capital for investments. In other words, states became the most

1 Hazel Fox, “ Sovereign Immunity and Arbitration” Contemporary Problems in International Arbitration Julian D.M. Lew (Martinus NiJhoff Publishers 1987), 323

2Peter Behrens, “Arbitration as an Instrument of Conflict Resolution in International Trade: Its Basis and Limits” Symposium on the Conflict Resolution in International Trade, (Baden-Baden: Nomos Verlagsgesellscchaft Baden-Baden, 1993), 14 3 Daniel J. Michalchuk, “Filling a Legal Vacuum: The Form and Content of Russia’s Future State Immunity Law Suggestions For Legislative Reform” Law and Policy in International Business Vol: 32 No: 3 (Spring 2001), 487

3

significant actors in the world economy. Through the mid-20th century, the role of

state in national economies has been diminishing. The trend of liberalization of the

national economies has been increasing since the end of the Cold War. Especially

the developing states, including the former socialist ones, have insufficient capital to

sustain their economic developments. Most of the East European former socialist

states became EU member states which integrated them into the liberal economic

order and western democracy.

As an emerging market with a liberal-based economy, Turkey has opened up

its economy to foreign investments with similar motives of the other open-market

economies in the last twenty years. However, the idea of international arbitration has

been considered as transferring the right of jurisdiction that is based on sovereignty

of the Turkish state, to another legal framework. Debates on the legal role of the

international commercial arbitration in the Turkish legal system continue. However,

the legislature amended the Constitution, which was disabling international

commercial arbitration especially in concession contracts between the state and

foreign investors. The Turkish Grand National Assembly also enacted laws that

recognize the role and effect of arbitration in case of disputes based on commercial

and concession contracts.

In the process of integrating Turkey into the new economic order and

attracting foreign capital, restrictions for the international commercial arbitration

4

especially in concession contracts were contradictory to liberal economic policies. In

order to understand the importance of international commercial arbitration, the

importance of foreign investment and capital should be evaluated.4

Regarding both public and private sectors there have been scarce resources

for investments. In addition to insufficient capital reserves problem, there had been

state monopolies in particular sectors in Turkey which were also disabling the

private investments. By the introduction of liberal economic policies in the 1980s,

some finance and investment models for private investments have been used such as

Build-Operate-Transfer (BOT). Although these policies improved the conditions for

attracting both foreign and domestic investors to engage in some unspoiled sectors

for private initiatives such as energy and infrastructure, these initiatives are not

sufficient to satisfy the public demand. The vast and expensive projects, which are

generally planned by the government and municipalities, became questionable

because of the conditions of financing the projects. Scarce resources of the public

sector compelled legislators to reform some sectors and areas in order to attract both

foreign and domestic investors. The applicability of international commercial

arbitration is one of the prerequisites for attracting foreign investors in case of an

investment dispute arises.

4 Foreign investment does not simply provide funds but an integrated package of financial resources, managerial skills, technical knowledge, and marketing connections. It is not a debt-creating instrument; the foreign investors bear the risks of project failure, local judicial problems and politics. See Ibrahim F.I. Shihata, “Factors Influencing the Flow of Foreign Investment and the Relevance of a Multilateral Investment Guaranty Scheme” 21 International Law (1987), 671

5

Foreign investment or capital movements have different factors and these are

making risk management, legal, political, and market conditions of the country. In

this respect the tense linkages between different disciplines become vital in order to

evaluate foreign investment. In this study, an interdisciplinary approach comprising

international relations, economics and law, will be adopted. In the assessment of

foreign investments in a country, all these factors should be connected to eliminate

one-sided analysis of foreign investments and capital movements. This work will

stress in addition to international and national political aspects, mostly the legal

aspect.

In the first part, arbitration as a dispute solving mechanism will be focused

on. There have been tremendous initiatives for the acceptance of international

commercial arbitration as an alternative dispute solving mechanism. In addition to

that, a brief history, the major protocols and conventions that were the milestones of

international commercial arbitration, are introduced. In the second part, the

institutions and features of international commercial arbitration are discussed. In this

respect, the UNCITRAL (United Nations Commission on International Trade Law)

that is a model law created by the UN for uniforming and harmonizing the

procedures of international commercial arbitration, is examined. In the same part the

ICC (International Chamber of Commerce) and the ICSID (International Centre for

Settlements of Investment Disputes) will also be evaluated respectively as the major

institutions for solving commercial and investment disputes. In the third part,

6

perspectives of the Turkish Judiciary System to international commercial arbitration

will be introduced. In this respect the constitutional amendments which enable the

enforcement of the arbitral awards are the main objective of the fourth part. In

addition to the amended Constitutional articles related laws are also discussed. In the

fourth part of the study the role and importance of international arbitration on

foreign investment will be discussed. During the discussion, aspects of both state

and private sector are going to be focused on.

7

CHAPTER II

THE REASONS AND MOTIVES OF INTERNATIONAL COMMERCIAL

ARBITRATION

Generally laws and norms particularly national and international laws are not

compatible with the needs of the new economic order. Intensified international

economic relations create multi-dimensional relationships between state-to-state,

state-to-individual and individual-to-individual. There should be accepted national

and international rules, norms and laws for the regulation of the relationships.

The legal dimension of these relationships, should be ruled by international

commercial and investment norms, rules and laws in order to create a kind of rule of

law in the global order. There have been lots of international attempts to protect the

rights of international traders and investors who have been investing and trading in

different countries such as the World Trade Organization. The reason behind those

efforts is the insufficiency of trust in national laws that has also been regulating

8

international economic disputes.5 Until the end of the Second World War, those

attempts were interpreted as part of colonialism because economically and

politically powerful states had various interests in different geographies.

In the post-war atmosphere and rebuilding of international relations, political

and economical barriers started to diminish in some particular areas of the world,

such as in Western Europe and in Northern America. Without a doubt by intensified

economic relationships and investments, international economic disputes flourished.

As respective consequences of the complex and intense commercial relationships, a

kind of international commercial court was proposed, but in practice it was still

unrealistic, because of a variety of disputes, states and regulations.

Some international commercial disputes can not be resolved by national

courts. Contracting parties generally prefer neutral dispute solving mechanisms,

which can be settled though arbitration.6 In this case, arbitration arose as an

alternative dispute solving mechanism which is as old as the first commercial

dispute. In basic terms, arbitration is a dispute solving mechanism between parties

by the empowered institutions or individual(s) without applying to the national

courts.

5 Philippe Cahier, “The Strengths and Weaknesses of International Arbitration involving a State as a Part” ”“Contemporary Problems in International Arbitration Julian D.M. Lew (Martinus NiJhoff Publishers, 1987), 245 6 Paul E. Comeaux and N. Stephan Kinsella, Protecting Foreign Investment Under International Law (New York: Oceana Publications Inc., 1997), 185

9

There are many concrete reasons and motives of preferring arbitration as a

dispute solving mechanism by the international business community. The first

concrete motive is the mistrust in the local courts’ verdicts in case of an international

party involvement in the dispute. There is a general perception by the creditors and

capital owners that national courts always decide in favour of pubic interest and

make partial decisions. Although this perception can also be interpreted as a biased

argument, especially in developing countries where the judiciary system is not

developed and corruption or politics have de facto capability to intervene with the

judiciary, this argument may be realistic. In addition to that, national judiciary and

especially the administrative courts have a general tendency to protect the public

interest in its verdicts.

The second motive is that arbitration is an alternative mechanism if a party of

the dispute is uncertain about the procedures and substantive rules of the host

country.7 In a national legal system there can be some commercial laws that may be

insufficient and old fashioned commercial procedures that violate the international

commercial practice8. In this case, language has also a great impact on this motive.

The regional language and legal approach may also be a problem for a foreign party.

However, the parties of the arbitration contract have the capacity of determining the

laws and procedures which would be applied in the arbitration process.

7 Jan Paulsonn, “Dispute Resolution” Economic Development, Foreign Investment and the Law ed. Robert Pritchard (London: Kluwer Law International and International Bar Association, 1996), 210 8 Muharrem Balci, “Itilaflarin Çözum Yollari ve Tahkim”, (İstanbul: Danisman, 1999), 315

10

The third motive is the time length of the normal judiciary proceedings. In

many countries like Turkey, adjudicating a dispute take many years. However,

especially in international commercial matters, the time span of a tribunal can lead to

both substantive and financial losses. There is no doubt that the arbitral proceedings

also take a remarkable time period but most of the arbitral tribunals are made in an

intensified time zone. From a comparative perspective, the arbitration process is

shorter than national judicial systems.

The fourth motive for arbitration is the secrecy of the arbitral tribunal. In the

global system, there are many global firms with shares are at the global markets or

there are firms that have secret commercial relations. In this respect, secrecy

becomes vital for the parties. However, the national courts’ tribunals are open to the

public that could be a threat to the interests of a party. International commercial

arbitration tribunals are out of the public eye and the arbitral award can be kept

secret between the parties.

The fifth motive is the technical capacity of the judgements. When a

commercial or investment dispute arises, cases are mostly technical, which requires

technical and financial expertise. On the other hand, in national courts, there is no

special expertise on the subject of the dispute. However, the arbitration mechanism

enables parties to select experts as arbitrator who have experience and expertise on

that special case.

11

The sixth motive is the problem of enforcement of the “foreign court’s”

award in another country. It is uncertain whether the judgment would be enforceable

in another jurisdiction. However, most countries signed international agreements and

enacted laws that enable the enforcement of foreign arbitration awards. In the third

chapter, the enforcement proceedings in the Turkish Judiciary System will be

evaluated.

2.1 The Development of International Commercial Arbitration in the 20th

Century

The general rules and norms of the international commercial arbitration have

been designed and determined by international agreements, institutions and regional

organizations that link the rules of arbitration to the national laws and judiciary

systems. The first international agreement on the legal and procedural order of

international commercial arbitration was the Protocol of Geneva in 1923. The

Geneva negotiations aimed to introduce arbitration as an alternative dispute solving

mechanism.9 However, the international environment was not very appropriate for a

wide range of participation because the WWI had just ended and protectionist

economic policies were on the stage. The protocol was ratified only by 24 states.

This had discouraged some of the industrialized states, which had the capability of

9 W. Laurence Craig, Trends and Developments in the Laws and Practice of International Arbitration ( www.coudert.com/practice/intcom.htm ),5

12

trading and investing internationally such as Britain. Although this initiative was the

first international initiative that recognized arbitration as an alternative way of

international commercial dispute solving, it could not ensure international

participation and recognition of the arbitral awards for enforcement within national

boundaries.

In order to overcome “enforcement of the awards” handicap, another

convention, the Geneva Convention on the Execution of Foreign Arbitral Awards,

had been summoned for the states which had ratified the Geneva Protocol in 1927.10

However, the necessity of double ratification for completing both recognition and

execution of foreign awards also limited the approval of this convention as well.

Several institutions are also involved as independent actors of the

international commercial law system. The primary institution is, doubtlessly, the

UN. In the postwar atmosphere of the 1950s, the desire for international commercial

arbitration as an alternative dispute solving mechanism in international trade and

investment became one of the primary issues of the international trade agenda. The

reason was because the flourishing interaction of different nations and their national

firms had especially caused different types of international disputes. The necessity

for an internationally accepted dispute solving came on the agenda of the

International Chamber of Commerce as well.

10 Ergin Nomer, Nuray Ekşi, Günseli Gelgel, Milletlerarası Tahkim, (İstanbul: Beta Yayım Dağıtım, 2000),21

13

The International Chamber of Commerce (hereinafter the ICC) which was

established in 1919, pioneered a new understanding which was institutional

commercial arbitration. The ICC had introduced an initial draft of procedures and

rules of arbitration to the United Nations Economic and Social Council that gave the

primary role to the ICC as an international arbitration institution. In addition to the

institutional approach of the ICC, the recognition and enforcement of the awards, as

a model, was proposed to the UN Economic and Social Council. In this respect, the

UN summoned a convention in 1958, UN Conference on International Arbitration,

which is also known as “the New York Convention on the Recognition and

Enforcement of Foreign Arbitral Awards” (hereinafter New York Convention).

Participation was wider when compared to the Geneva Convention of 1923,

including France, India, the Soviets Union, Egypt, Israel and Turkey. However,

ratification by the states was not fast and wide as the conclusion of the convention.

The U.S.A., which was the most dominant international commercial activist for a

century, did not ratify the convention until 1970. Turkey, as a signatory state of the

New York Convention, ratified the convention in 1991 and amended its constitution

to ensure conformity.

The international commercial arbitration has been on the agenda of several

international organizations other than UN such as the World Trade Organization

(WTO), the OECD (Organization of Economic Cooperation and Development) and

the World Bank. All these institutions have similar concern over foreign

14

investments, which is security of the capital by all means. In this context the WTO

made tremendous efforts for the general acceptance of international commercial

arbitration in global trade. In the WTO Uruguay Round, the developed states

proposed high level of investor protection that allows the investors to sue the host

states on every dispute with a wide scope. However, this initiative was withdrawn in

Uruguay Round negotiations due to the strong oppositions of the developing states.

In the next part, on the basis of efforts which were mentioned above,

institutions and features of international commercial arbitration will be focused by

introducing main models, idea of sovereign immunity and ad hoc and institutions.

15

CHAPTER III

THE INSTITUTIONS AND FEATURES OF INTERNATIONAL

COMMERCIAL ARBITRATION

3.1 Features of International Commercial Arbitration

The preference for international commercial arbitration has expanded in

recent years parallel to the increase in international trade, investment and

disputes arising therefrom. In this respect, international arbitration rules,

mechanisms and institutions have been developed. Arbitration laws differ from

country to country. Most of the developed countries have arbitration laws that permit

and regulate both national and international commercial arbitration. Some countries

enacted their own laws as the procedures of arbitration and some adopted commonly

accepted rules and procedures as a model law11.

In the context of international trade, disputes are preferred to be resolved

within international trade organisations and on particular standards such as

institutional commercial arbitration. Arbitration, unlike mediation that is also a type

11 Some states like Australia, Bulgaria, Canada, Egypt, Russia and Tunisia adopted the UNICITRAL Model Law.

16

of alternative dispute solving mechanism, is a binding dispute solving mechanism.

In order to guarantee its binding effect, parties of a contract should either agree to

arbitration in a contract before the dispute arises or agree to arbitration after a

dispute arises12. International arbitration also differs from international litigation in

that arbitrating parties determine to a large extent what procedural rules will govern

the resolution of their dispute. However, in litigation there are certain and common

laws and procedures.

Commercial arbitration basically has two dimensions: contractual and

judicial. On the contract side arbitration is based on between minimum two

contractual parties. Arbitration implies that parties “agree” to submit a dispute for

settlement to a person or institution instead of to courts. On the judicial side like the

other national and international jurisdictions, arbitrator person or the institution

should rely on an arbitration law laying down the rules for the arbitration procedure

and legal effects of the award.

There are also distinctions in national and international commercial

arbitration. The distinctions between national and international arbitration are

generally based on the place of the dispute and the arbitral tribunal. For national

arbitration, all elements (parties, dispute, and place of arbitration and arbitrators) are

12 Richard Hill, “Primer on International Arbitration”, July 1995, (http://www.batnet.com/oikoumene/arbprim.html )

17

located within one legal system.13 In case of international arbitration, these elements

have connections with different legal system14.There are also variations of practice,

norms and rules in international commercial arbitration. In the practice field, there

are two main models of commercial arbitration. These are ad hoc and institutional

arbitration.

The first model is the ad hoc arbitration, in which the parties negotiate and

determine the procedures, rules and arbitrators either before or after the dispute has

arisen. The other way of deciding on the procedure of the arbitration is addressing to

a particular model law or an institution that has its own procedures. The most

common and internationally accepted model law on international commercial

arbitration is the United Nations Commissions on International Trade Law

(UNCITRAL). Although it is generally considered as a model law for ad hoc

arbitrations, its procedures are being used by arbitration institutions such as the

American Arbitration Association. The UNCITRAL, as a particular model law, is

evaluated in the forthcoming part.

The second model is to addressee an institution’s procedures and tribunal.

The oldest and most accepted institution is the International Chamber of Commerce

(ICC) which is located in Paris. Since the International Court of Arbitration was

established in 1923, ICC arbitration has been constantly nourished by the experience

13 Ergin Nomer, Nuray Ekşi, Günseli Gelgel, Milletlerarası Tahkim, (İstanbul: Beta Yayım Dağıtım, 2000), 4 14 Hans Van Houtte, The Law of the International Trade, (London: Sweet & Maxwell 1995), 384

18

gained by the ICC International Court of Arbitration in the course of administrating

some ten thousand international arbitration cases15.

The various institutional rules differ in their regulation of the arbitral

proceedings. In addition to the framework of the procedures, the ICC rules also

contain “voluntary” procedures such as appointing a referee. As a result, there is a

particular framework for arbitral proceeding in an institutional arbitration, but there

are also voluntary rules that the parties of the commercial contract can decide before

or after the dispute has arisen.

International commercial arbitration generally takes place between private

entities, but there is an exception when a dispute may involve a sovereign entity,

state, or an agency of the sovereign entity. In this case international arbitration is not

as simple as it is between two private entities. When a dispute arises between a

sovereign entity and a private party, it assumes both public and private international

law aspects. It is an international public law issue, because there should be bilateral

or multilateral investment and trade agreements between states that enable

international arbitration in case of a dispute between a sovereign entity and foreign

private entity. It is a private law issue as long as there is an international commercial

contract between related states and the dispute become arbitrable.

15 ICC-International Chamber of Commerce Arbitration Rules, from the Foreword paragraph, http://www.jus.uio.no/lm/icc.arbitration.rules.1998/doc. html

19

3.2 Sovereign Immunity and International Arbitration

While private entities and foreign governments interact commercially, and

when dispute arises, the predominant concern is that the state will claim immunity

from private lawsuits based on the principle of sovereign or state immunity16.

However, there is lack of uniformity in immunity rules. There are two dominant

international law doctrines on the state immunity, which are: the absolute doctrine of

immunity and the restrictive doctrine of immunity17. The absolute doctrine of state

immunity has been accepted by etatist states where the national economies are

closed to foreign investment. However, the practice is not parallel to the absolute

doctrine of immunity18. Today most countries, except for a few Third World

Countries, the restrictive doctrine are accepted.

States, which accepted the restrictive doctrine of immunity, determine the

limits of state immunity over foreign arbitral awards and court decisions. In this

respect there are international treaties, bilateral agreements and unilateral acts of the

states. At the international convention level, there is the European Convention on

State Immunity, which states that a state party to an arbitration agreement is

precluded from asserting its immunity in order to frustrate the purpose of the

16 Daniel J. Michalchuk, “Filling a Legal Vacuum: The Form and Content of Russia’s Future State Immunity Law Suggestions For Legislative Reform” Law and Policy in International Business Vol: 32 No: 3 (Spring 2001), 487 17 Georges R. Delaume, “Sovereign Immunity and Transnational Arbitration” Contemporary Problems in International Arbitration ed. Julian D.M. Lew (Leiden: Martinus NiJhoff Publishers,1987), 313 18 Ibid,314

20

agreement19. There are also unilateral acts of some states that determine the limits of

state immunity on international arbitration tribunals and awards. The most

outstanding versions of unilateral acts are the Foreign Sovereign Immunities Act in

the United States and the State Immunity Act in the United Kingdom. In these acts,

states determine and limit the sovereign immunity over foreign judicial awards

including international commercial arbitration. Although the majority of the states

did not determine the limits of sovereign immunity, they adopted the restrictive

doctrine, which enables international commercial arbitration and enforcement of

arbitral awards.

The intensified transnational commercial activities drew the states to waive

their sovereign immunity on international commercial arbitration. In order to

evaluate the risks of engaging in business with transitional and developing

economies, foreign governments require clear standards for determining when

sovereign entities will be afforded immunity20. Most of the Western states adopted

the restrictive doctrine of immunity and the U. S. Department of State declared that:

“the increasing involvement of governments in commercial activities coupled with

the changing views of foreign states to absolute immunity rendered a change

19 Ibid,315 20 Daniel J. Michalchuk, “Filling a Legal Vacuum: The Form and Content of Russia’s Future State Immunity Law Suggestions For Legislative Reform” Law and Policy in International Business Vol: 32 No: 3 (Spring 2001), 490

21

necessary and thereafter “the Department” will follow the restrictive theory of

sovereign immunity”21.

Foreign investment has a primary role on waiving sovereign immunity of the

states. Developed states, which have acts on the limitation of sovereign immunity,

have commercial interests and investments all over the world. It should also be noted

that the principle of reciprocity in international relations is still critical and those

developed states are seeking reciprocal acts from the other states which limit the

sovereign immunity and enable international commercial arbitration.

On the developing states’ side, waiving sovereign immunity is generally

accepted as one of the prerequisites for attracting foreign investment. It is expected

from the developing states that they should adopt a state immunity regime which

will guarantee that foreign investors will feel confident in participating in the

growing foreign economies and enables international commercial arbitration.

3.3 Major Models and Institutions in International Commercial Arbitration

There are many models, methods and institutions, which are particularly

designed for international commercial and investment disputes. In this study,

UNCITRAL Rules is accepted as a major model law for international commercial

21 M.N. Shaw, “International Law”, (New York: Grotius Publications Cambridge University Press 1991), 437

22

arbitration due to its acceptance and widespread usage in international business. As

it was mentioned above, there are also institutional models for international

arbitration. The International Chamber of Commerce (ICC) Arbitration rules are

internationally accepted by the international business environment. Like the

UNCITRAL Rules, the ICC arbitration is another cornerstone in the international

commercial arbitration and this attracts us to evaluate ICC and its procedures.

The other institution to concentrate on is the ICSID. This is a particular

centre, the International Centre for the Settlement of Investment Disputes (ICSID)

that is a public international organization established by a multilateral treaty in 1965.

It provides facilities for the conciliation and arbitration of investment disputes

between Contracting States and nationals of other Contracting States22. In the

following part of the ICSID; its rules and procedures and Turkey specifically as

contracting state are examined.

As it was mentioned above, if one of the parties of an international

investment contract is a sovereign entity and if there is bilateral investment treaties

(BITs) between two states, the ICSID arbitration would be addressed. Turkey, as a

signatory state to the ICSID convention, made tremendous changes in its judicial

system to enable international commercial arbitration, especially on investment and

concession contracts between the Turkish State and even its subsidiaries with

22 Ibrahim F.I. Shihata and Antonio R. Parra, “The experience of the International Centre for Settlement of Investment Disputes”, Foreign Investment Law Journal 14:2 (Fall 1999)

23

foreign private entities. Consequently, the ICSID jurisdiction has a special

importance for Turkey.

3.3.1 UNCITRAL As A Model Law

UNCITRAL (United Nations Commission on International Trade Law) is a

model law for the international commercial disputes that was recommended by the

UN General Assembly in 1985. It aims to reduce the role of national courts on

international commercial disputes and enable the recognition and enforcement of the

foreign awards. The commission included observers of states, intergovernmental

organizations and international organizations such as the ICC (International

Chamber of Commerce) and the ICCA (International Council for Commercial

Arbitration). All these parties recognized that the procedures and laws that had been

used until the UN initiative became insufficient as a dispute solving mechanism.

Generally, the former implications were domestically designed and unable to cover

the requirements of contemporary international business disputes. This initiative of

the UN was created on the basis of the New York Convention and advocates the

trend of arbitration in international disputes.

The adopted Model Law aims to create a model law for the states, which are

preparing their own national laws and regulations23. The UNCITRAL rules and

23 Ergin Nomer, Nuray Ekşi, Günseli Gelgel, Milletlerarası Tahkim, (İstanbul: Beta Yayım Dağıtım, 2000),43

24

regulations are widely accepted among both developed and developing states24.

Most of the states including Turkey, enacted international commercial arbitration

law in line with the general understanding and regulations of UNCITRAL. The

UNCITRAL regulations are also applicable especially in ad hoc arbitration. These

regulations include very detailed rules and thus offer a solution for many procedural

problems25. The variations of UNCITRAL Rules had also been formed in different

areas such as on the disputes between U.S. nationals and the government of Iran

arising from expropriations of the property of U.S. nationals26.

The most significant and outstanding reason of global acceptance of the

UNCITRAL rules is its flexible features. Article 15 of the UNCITRAL Rules

enables the flexibility of the arbitral tribunals by stating that: “Subject to these

Rules, the arbitral tribunal may conduct the arbitration in such manner as it considers

appropriate…” Howard M. Holtzmann claimed that: “the broad power of the arbitral

tribunal to determine the procedures to be followed is, firmly hedged by the

introductory phase ‘subject to these rules’27. The arbitral tribunal has a high degree

of flexibility according to the UNCITRAL Rules. However, there are some

limitations on this flexibility that include: each party must be treated with equality

24 Paul E. Comeaux and N. Stephan Kinsella, “Protecting Foreign Investment Under International Law” (New York : Oceana Publications Inc., 1997),196 25 Hans Van Houtte, The Law of International Trade (London: Sweet & Maxwell, 1995), 395 26 Paul E. Comeaux and N. Stephan Kinsella, (1997), 197 27 Howard M. Holtzmann,”Balancing the Need For Certainty And Flexibility In International Arbitration Procedures” in ed. Richard B. Lillich and Charles N. Brower “International Arbitration In the 21st Century: Towards “Jurisdiction and Uniformity” (New York: Transnational Publishers, Inc,1994),5

25

and allowed to present its case in full;28 the claimant and defendant should each

submit written pleas to arbitrators and to the other party.29

As it was mentioned above the UNCITRAL Rules are modified by national

laws. The parties of an arbitration contract may also make these modifications. The

UNCITRAL Rules give the parties freedom to choose the substantive law that will

govern their dispute30. If the parties do not choose an applicable law, the tribunal

may determine the law. In a dispute involving foreign direct investment, many

conflicting laws will point to the Host State’s law as the governing law.31 If the

investor does not accept the Host State’s law to apply then the parties of the

arbitration contract can choose the UNCITRAL Rules as rules of the arbitration

process.

The other important issue in UNCITRAL Rules is the recognition and

enforcement of the arbitral awards. Article 50 of the UNCITRAL Rules states that

“…the grounds on which recognition or enforcement may be refused under the

Model Law are identical to those listed in article 5 of the New York Convention”32.

28 Article 15 of the UNCITRAL Rules (http://www.uncitral.org/uncitral/index.html) 29 Article 18 of the UNCITRAL Rules (http://www.uncitral.org/uncitral/index.html) 30 Article 33 of the UNCITRAL Rules (http://www.uncitral.org/uncitral/index.html) 31 Ibrahim F.I.Shihata & Antonio R. Parra, “Applicable Substantive Law in Disputes Between States and Private Foreign Parties: The Case of Arbitration under the ICSID Convention” ICSID Rev- For Investment Law Journal 10 (1994), 191 32 Article 50 of the UNCITRAL Rules (http://www.uncitral.org/uncitral/index.html)

26

The New York Convention put the recognition and enforcement of the

arbitral awards at top priority of the international commercial law. Article 5 of the

New York Convention specified the exceptions of enforcement of the arbitral

awards which solved the most problematic side of the arbitration. There are basically

five exceptions, first two are substantial and the last three are procedural.

On the substantial side, Article 5 of the New York Convention empowered

the signatory states to evaluate the cases whether the case is arbitrable or not. The

second substantial exception is the violation of the public order and interests.33 If the

national court, which is authorized to enforce the foreign arbitral award, interprets

that the arbitral award is against the public interests, the national court, on the bases

of the New York Convention, has the capacity of not enforcing the award. The issue

of foreign arbitral award and public interests is concentrated in the third part.

On the procedural side, the New York Convention empowered the signatory

states to refuse to recognize and enforce the arbitral awards if there is not a valid

arbitration agreement between the parties of the dispute. The second procedural

exception is that if there is a lack of the opportunity to be heard by the arbitrator than

the arbitral award could not be recognized by the national court. The third and the

33 The New York Convention of 1958 article V. See David P. Stewart, a senior officer at the Department of State of U.S., in “National Enforcement of Arbitral Awards under Treaties and Conventions” International Arbitration in the 21st Century : Towards “Judicialization” and Uniformity? Ed. Richard B. Lillich and Charles N. Brower (New York: Transnational Publishers, 1994),185

27

final procedural exception is that if the award lacks binding effect because the

competent authority suspends the award, then the arbitral award could not be

recognized by the national court. States were limited with those procedural and

substantial conditions so as not to act in opposition to the arbitral awards.

The importance of the arbitration protocol between the parties increased

while these procedural and substantial conditions were fulfilled according to the

New York Convention. In order to secure and guarantee the enforcement of the

arbitral award, the arbitration protocols should fulfill the conditions of the

Convention. By the securitization of the enforcement of the awards, international

arbitration became a generally accepted, preferred and recognized tool in

international commercial disputes.

3.3.2 International Chamber Of Commerce (ICC) Arbitration

The International Chamber of Commerce (ICC) created its Court of

Arbitration shortly after the First World War.34 The ICC has become one of the

leading institutions that serves international commercial arbitration since the 1920s.

Although the centre of the ICC is located in Paris, its service of arbitration is not

limited at the centre, but all over the world. The ICC has a set of arbitration rules for

usage of the arbitration applicants. In the foreword paragraph of the Rules of

34 Jan Paulsson “Dispute Resolution” ed. Robert Pritchard Economic Development, Foreign Investment and the Law (London: Kluwer Law International and International Bar Association, 1996), 209

28

Arbitration of the ICC it is stated that: “ICC arbitration has been constantly

nourished by the experience gathered by the ICC International Court of Arbitration

in the course of administrating some ten thousand international cases, now involving

each year parties and arbitrators from over one hundred countries and from a

diversity of legal, economic, cultural and linguistic backgrounds”.35

Unlike ad hoc arbitration, the ICC has its own institutional rules and

regulations such as the confidential character of the tribunals. The ICC has a

secretariat, which receives the applications and organizes the tribunal. The parties of

the arbitration are free to stipulate the arbitration place as well as arbitrators.

However when the ICC arbitration is preferred by the parties of the dispute, they

consent to all the procedures and rules of ICC unlike ad hoc arbitration.

The details of the ICC Rules are not the main objective of this study hence

only some particular features of the ICC Rules are taken into consideration. One of

the significant features is that the ICC proposed conciliation to all the arbitration

applicants before the arbitral tribunal unless the parties have agreed otherwise. The

ICC Rules enable the parties to agree upon the law to be applied in the arbitral

tribunal.36

35 ICC-International Chamber Of Commerce Arbitration Rules (adopted to take effect from 1 January 1998) http://www.icc.org 36 Article 17 of the ICC-International Chamber Of Commerce Arbitration Rules (http://www.jus.uio.no/lm/icc.arbitration.rules.1998)

29

Another significant feature is related with the binding effect of the ICC

arbitral awards. Article 28/6 of the ICC Rules claims that the arbitral award shall be

binding on the parties of the arbitration. Unlike the UNCITRAL Rules that has

references from the New York Convention especially on the enforcement issue the

ICC Rules does not involve any provision considering Article 5 of the New York

Convention. Similar to the ad hoc arbitration, the ICC arbitral awards are enforced

in Turkey on the bases of the international agreements and national law and

proceedings.

3.3.3 International Centre For Settlement Of Investment Disputes (ICSID)

The International Centre for Settlement of Investment Disputes (ICSID) is a

public international organization established by a multilateral treaty, the 1965

Convention on the Settlement of Investment Disputes between States and National

of Other States.37 The ICSID was established to satisfy the need for an apolitical

mechanism to provide facilities for the arbitration of investment disputes between

states and foreign investors.

The ICSID arbitration, like the ICC arbitration, is an institutional arbitration

centre and proposes conciliation before taking the dispute to the arbitral tribunal. It

has also unique features that differentiate the ICSID arbitration mechanism from the

37 Ibrahim F.I. Shihata and Antonio R.Parra, “The Experience of the International Centre for Settlement of Investment Disputes” Foreign Investment Law Journal 14:2 (Fall 1999), 299

30

other institutional arbitration centers. Firstly, ICSID was established by international

convention that 135 states signed.38 Secondly ICSID is not just an arbitration centre,

but it is also an organ of the World Bank for the encouragement of the foreign

investments. Thirdly, it is compulsory arbitration when the parties of the investment

dispute decide on. In other words, after consent is given to ICSID, it is irrevocable.

Finally, the award made by the ICSID arbitration is certain and none of the national

laws and reservations such as protecting the public interest can change the award

and enforcement of the award.

Paul E. Comeaux and N.Stephan Kinsella specified the three conditions of

ICSID Centre that must be satisfied to accept jurisdiction over a dispute. Firstly, the

dispute must involve a Contracting State and a national of another Contracting State.

Secondly, both the Host State and the investor must agree to submit the particular

dispute for arbitration to the ICSID Centre. These two conditions are called “double

consent”. Finally, the dispute must arise directly out of an investment.39

Turkey, as a signatory state of the ICSID Convention, signed many Bilateral

Investment Agreements where ICSID arbitration is recognized as the dispute solving

mechanism for disputes arising from concession contracts. Turkey, before enabling

the international commercial arbitration for the concession contracts in 1999,

38 Ibid, 300 39 Paul.E.Comeaux and N.Stephan Kinsala, Protecting Foreign Investment Under International Law, (New York :Oceana Publications Inc. Dobbs Ferry, 1996), 29

31

recognized the ICSID arbitration where the awards are irrevocable by international

agreements

Unlike the ad hoc arbitration and other institutions, on the base of the ICSID

Convention, the enforcement of the ICSID arbitral awards has absolute binding

effect for the parties. Article 54/1 of the Convention requires each Contracting State

to recognize an award rendered pursuant to the Convention as binding and to enforce

the pecuniary obligations imposed by the award as if it were a final judgment of the

State’s courts.40

Turkey, by its consent given under the Bilateral Investment Treaties with

several states, accepted ICSID arbitration as a dispute solving mechanism for

investment disputes. However, in Turkey international commercial arbitration has

been presented as a new phenomenon for the concession agreements such as Build-

Operate-Transfer investment model. Birsel and Budak claim that the disputes

arising out of concessions regarding foreign investments were arbitrable under any

arbitration mechanism including ICSID if the arbitration was provided for in

Bilateral Investment Treaties. 41

40 Ibrahim F.I. Shihata and Antonio R.Parra, “The Experience of the International Centre for Settlement of Investment Disputes” Foreign Investment Law Journal 14:2 (Fall 1999),341 41 M.T.Birsel and A.C. Budak, “Milletlerarası Tahkim Konusunda Türk Hukuku Açısından Sorunlar ve Öneriler” in the Symposium “Milletlerarası Tahkim Konusunda Yasal Bir Düzenleme Gerekirmi?” 261 (1997)

32

After focusing on the features and institutions of international commercial

arbitration and introducing relationship between Turkey and international arbitration

institutions, next part is focusing on international arbitration in the Turkish judiciary

system by concentrating on development of arbitration notion in Turkey,

Constitutional regulations, concept of public interest and order, and arbitration

related laws.

33

CHAPTER IV

INTERNATIONAL ARBITRATION IN THE TURKISH JUDICIARY

SYSTEM

4.1 The Background of the International Commercial Arbitration in the

Turkish Judiciary System

The concept of arbitration is as old as the Republic of Turkey. The procedure

of arbitration was determined by the Hukuk Muhakemeleri Usul Kanunu (HUMK -

Statute of Procedural Law) in 1927. There are also procedures and regulations that

regulate international private law. In addition to these procedural regulations, Turkey

signed almost all-major international agreements on the international commercial

arbitration. These agreements are namely Geneva Convention on the Execution of

Foreign Arbitral Awards, New York Convention on the Enforcement of the Arbitral

Awards and the Washington Convention (International Centre for the Settlement of

Investment Disputes). Turkey also recognized the procedure of arbitration in some

Bilateral Investment Treaties (BITs) with other states in case of a dispute between

the Turkish state and foreign private persons.

34

From an international perspective, Turkey is a country that has recognized

the concept of international commercial arbitration in the early years of the republic

and signed the major agreements that recognize the enforcement of the international

arbitral awards. Although Turkey had signed all these international agreements, in

respect to the universal ethic of international law that is pacta sunt servanda42,

Ankara did not ratify these international agreements until the early of 1990s.

According to article 90 of the Turkish Constitution, which has been in force since

1982, the enforcement of an international agreement can be accepted by ratification

of the Turkish Grand National Assembly enacting it into law. The same article of the

Turkish Constitution also determined the understanding of the conflict of laws.

With same the reference in the Constitution, all the international agreements are

equal to the other national laws if the international agreement ratified according to

the procedure, which is described in article 90 of the Turkish Constitution43. The

recognition of foreign arbitral awards and accepting enforcement of these awards

were realized through two distinct laws. The International Private Law (Law No.

2675) enabled the enforcement in Turkey of foreign arbitral awards in 1982. In

42 Paul.E.Comeaux and N.Stephan Kinsala, Protecting Foreign Investment Under International Law, (New York :Oceana Publications Inc. Dobbs Ferry, 1996),201 43 According to the Turkish Constitution, article 90 also disables the all the possible initiatives that claim the invalidity of an international agreement if it is recognised according to the procedure of the Turkish Constitution. The other significant point is that The Constitutional Court can not judge the validity and discrimination of the international agreement to the Constitution.

35

addition to this law, Turkey ratified the New York Convention on the Recognition

and Enforcement of Foreign Arbitral Awards by Law No. 3731 in 199144.

Although there was not any obstacle for the practice of international

commercial arbitration after the ratification of international agreements on the basis

of the Turkish Constitution, there had been contradicting constitutional articles that

disable international arbitration in concession agreements that relates to the public

services. These contradicting articles numbered 125 and 155 had been amended in

1999 to enable the Hukuk Usulü Muhakemeleri Kanunu (Statute on the Procedural

Law) and Milletlerarası Özel Hukuk ve Usul Hukuku Kanunu (The Statute on The

International Private And Procedural Law) to be the applicable law to international

arbitration even for concession agreements.

In Turkey, as a concept, arbitration is not common as in other countries as an

alternative dispute solving mechanism. Arbitration is understood as an international

dispute solving mechanism. However the HUMK (Statute on the Procedural Law)

also enables the native conflicting parties to prefer arbitration to solve the disputes

(Articles 516- 536). But national arbitration is not a common dispute solving

mechanism in practice. In developed countries, arbitration is commonly used by the

business community where seventy percent of the conflicts of business law are

resolved through alternative dispute solving mechanisms, mainly through

44 Nazan Candaner Elver, “Turkish International Arbitration Law and Restrictions on its Applications” Journal of International Arbitration 21(5), 453-458

36

arbitration45. In Turkey, in addition to the enacted laws that aim to encourage foreign

investments and policies of liberalization of the economy, international commercial

arbitration became one of the significant components of the foreign investments just

in the like globalizing economies46.

Before evaluating the constitutional amendments which were realized to

enable international commercial arbitration on concession and investment

agreements, the objective and purpose for international commercial arbitration

should be discussed. From a very simplistic aspect, international arbitration has been

introduced as one of the prerequisites for attracting foreign capital and investments

in Turkey. The relationship between foreign investment and arbitration is basically

based on the lack of confidence to the local judiciary system and the awards that are

made by the local courts. However this relationship can not be simplified just by

introducing the issue of confidence.

The Standard & Poor’s, an internationally recognized creditor and rating

institution, considers the legal structure of an investment as one of the significant

aspect of rating of the investment project. Standard & Poor’s analyses the legal risk

45 Cemal Şanlı, in his panel speech on “ İdari Şözleşmeler ve Uluslararası Tahkim” on 16 July 1999, Turkish Bar Assosiation, 6 46 There are three major laws that aim to encourage foreign investments in Turkey. One of them is The Law Concerning the Encouragement of Foreign Capital (No: 6224 Date: Jan 18, 1954) and the second one is Law Regarding Engagement in Investments and Services on the Built-Operate-Transfer Model (No: 3996 Date: June 13, 1994) that has provisions on foreign capital and relationship between state departments and the foreign company. The last one is Foreign Direct Investment Law( Law No.4875 Date: June 5, 2003).

37

of the project by evaluating the choice of legal jurisdiction and enforceability of the

international arbitration awards. Standard & Poor’s determined the risk of

enforceability as “the issues of the documentary enforceability lie at the heart of any

project financing” 47. In some respects the legal criteria that Standard & Poor’s

require for an investment project become vital for disabling the risks of all

restrictions on tax, competition, transfer of the profit and any other conflicts that are

based on matters of the investment agreement.

However, one remarkable argument was made by a Turkish Jurist, Yücel

Sayman, and former chair of the İzmir Bar Association, who criticizes the creditor

institution’s understanding of enforceable international arbitration as a prerequisite

for financing the investment projects. He claimed that “all creditor institutions only

focused on the interest of the investors, company and the articles of the investment

agreements. None of the creditor or investors concerns environmental issues or

public interests. All the procedural rules are given up for the sake of the rapidity of

the arbitration awards, cost of jurisdiction and secrecy of the conflict.”48

From the beginning of the 1980s, Turkey has been increasing by opening its

economy to international investments due to the lack of capital to sustain its

development. However, especially due to political instability and economic turmoil

47 www.standardpoor.com/resourcecentre/ratingscriteria/corporatefinance/article/energyinfra.htm#legal structure 48 www.izmirbarosu.org.tr/yargireformu2000/oturum61.

38

in the 1990’s disabled Turkey to sustain its development projects such as GAP

(Southern Anatolian Project) and other huge energy projects. The demand for new

infrastructure investments which require vast amounts of financing, increased by

population growth, industry and urbanization. In this respect, international

arbitration is introduced by politicians and interest groups as one of the most

problematic side of attracting foreign capital in the 1990s.49 Turkey enacted several

laws that aim to encourage foreign investments.50

An investment can not be evaluated just by focusing on its financial

feasibility. As it was mentioned above, Turkey made tremendous efforts to attract

foreign capital in economic terms by tax regulations and capital transfer. In addition

to that, in the Turkish Judiciary System there is no prohibitive law provision to

determine international arbitration where the parties of a contract are between two

private entities.

Turkey faced the international commercial arbitration problem as an

alternative dispute mechanism in investment agreements, by the enacting law on the

49 Cumhur Ersümer, Minister of Energy and Natural Resources, in his speech at the Conference on “Gas and Energy in Turkey” in İzmir on 22nd September 1999. http://www.byegm.gov.tr/yayyinlarimiz/TURKHABER/1999/28Eylul/T2,htm 50 The following laws were enacted due to the need for large amount of capital: 1) The law on the Authorisation of Institutions other than the Turkish Electricity Institution for Generation, Transportation and Distribution and Trade of Electricity no: 3096 dated 1984 2) The framework law on the Realisation of Some Investments and Services by Build-Operate-Transfer Model, No.3996 dated 1994. (The Constitutional Court recognised the Build-Operate-Transfer Projects as “concession agreements” in 1995. Until the constitutional amendment had been made (article 125) all the concession agreements were under the supervision of the Court of State)

39

Engagement in Investments and Services on Build-Operate-Transfer (B.O.T) Model

to encourage foreign investment in 1994. Foreign investors and creditors demanded

the applicability of international commercial arbitration in their B.O.T. contracts due

to mistrust in the Turkish Judiciary System. One year later, Constitutional Court

cancelled article 5 of the Law No: 3996 (Law Regarding Engagement in Investments

and Services on Build-Operate-Transfer Model) that is “the contract is subject to

private law provisions” that automatically enables international commercial

arbitration.51 In the same decision Constitutional Court also underlined that the

B.O.T. Model was interpreted as a “concession treaty” where the administrative law

is applicable52.

In addition to the Constitutional Court’s interpretation, foreign investors

faced the obstacle of the supervision of the Court of State for every concession treaty

due to the slow and conservative review of the Court. Algan Hacaloğlu, a former MP

(Member of Parliament) underlined the importance of the Court of State in

reviewing the state-to-individual contracts, including the concession contracts. He

pointed out that: “the primary responsibility of the state is to protect public interests.

The Court of State has the capacity of supervision of the concession contracts on

behalf the public interests. By amending the related provision in the Constitution,

51 Constitutional Court Decision No: 1995/23 52 A concession treaty means granting of a privilege in order to get non-governmental real and legal persons to perform services in public interests under the administrative law.

40

individuals would also lose their right to object to the contracts on the bases of

public interests”53.

According to the amended article 155 of the Constitution, the Court of State

was the sole authority for evaluating the contracts between the administration and

other private entities. The former Minister of Industry and Trade of the reform

period, Ahmet Kenan Tanrıkulu, pointed out that: “the Constitutional Court’s

cancellation ruling did not prohibit the arbitration condition to appear in

administrative contracts, but the uncertainty that arose, coupled with the negative

attitude of the Council of State in this respect, led to bottlenecks in foreign capital

investments”54.

By canceling article 5 of Law No.3996, the Constitutional Court disabled the

applicability of the international commercial arbitration in concession contracts.

Oktay Vanlıer, Parliamentary Commissioner of Turkiye Sanayici ve İşadamları

Derneği (TUSIAD- Turkish Industrialist and Businessmen Association), identified

the cancellation as all the Build-Operate-Transfer Projects being under the control

and supervision of the Court of State, because B.O.T. agreements were considered as

concession agreements. The second point was that in case of a dispute based on the

investment, the sole dispute solving institution was the Court of State. The third

consequence was that in the concession contracts only the discrimination or faults of

53 Algan Hacaloğlu, “Uluslararasi Tahkim ile ilgili olarak Anayasanin 47.,125.,155. Maddelerinde Değisiklik Öngeren Yasa Tasarısı Hakkinda Tartışma Notu” www.chp.org.tr/tahkim 54 http://www.yased.org.tr/en/insightyased/13/arbitration

41

the private investor was accepted by the administration, and in this respect the

administration had the capacity to void the investment agreements55. There is no

doubt that the final analysis of Vanlıer is the most critical argument due to the

relationship between the international creditors, investors and the administration,

since the security of an investment is the primary concern of the creditors.

The International Energy Association also emphasizes the same security

concern on the energy investments;

Companies and creditors will always look closely at the overall legal and administrative framework in a particular country. They want to be sure that they can, if necessary, protect their investments by recourse to law. This matters most in cases where agreements they have entered into are not being complied with other parties, or where customers have defaulted on payments. Dispute resolution is an important aspect of this issue, including whenever necessary access to international arbitration. In a wider sense companies and creditors will want to feel protected against crime and corruption56.

In order to abolish the barriers on the applicability of international

commercial arbitration for the investment agreements, Constitutional reform became

unavoidable. However, discussions on the applicability of international arbitration

and enforcement of the arbitral awards still continue. The constitutional amendments

were realized in 1999 that enable the applicability of international commercial

arbitration even in concession contracts and minimize the supervision role of the

Court of State over the investment agreements. The atmosphere of this amendment

in 1999 was confusing, because international arbitration was introduced as the sole

55 Oktay Vanlıer, “Yap-İşlet-Devret ve Uluslararası Tahkim” Görüş: October 1999 56 http://www.iea.org/g8/invest/exsum.htm

42

obstacle for foreign investments. In addition to this, a shady strategy and rumors on

energy shortage and lack of capital for financing the energy projects accompanies

the campaign on international arbitration. Under this campaign, the universality of

the law; institutions and concepts were introduced as the proof of international

arbitration in case of a dispute between the administration and foreign investors.

4.2 The Regulations of the Turkish Constitution

As it was mentioned above, Turkey had ratified the major international

treaties that enable the applicability of international commercial arbitration and the

enforcement of the arbitral award. Although these treaties and conventions had been

ratified in 1991, the conflicting articles of the Turkish Constitution remained until

1999. In 1999, the Turkish Grand National Assembly (TGNA) made Constitutional

amendments in order to ensure the coherence of ratified international treaties and

laws.

In the arrangement made by Article 2 of “The Act Concerning Amendments

on Certain Articles of the Constitution of Republic of Turkey” (Law No.4446)

which was accepted on 13th August 1999, the related article 125 of the Constitution

was amended. By this amendment, the application of international commercial

arbitration became available on disputes arising out of the concession agreements as

well. However, parliament has put a reservation on this clause that international

43

arbitration is only possible when the agreement involves a foreign element. Before

evaluating the “foreign element” concept, how the Turkish Judiciary System

interprets the concept of foreign element should be understood.

The International Arbitration Law, which was enacted on 21st June 2001,

regulates the procedure and concepts of international arbitration in Turkey, and

describes the concept of foreign element57. In order to apply international

commercial arbitration, one of the parties of the contract should fulfill the following

criteria.

The first criterion for foreign element is that at least one party of the

arbitration agreement has a legal domicile other than Turkey or a different legal

domicile other than the place of investment. The second criterion is at least one of

the parties of the arbitration agreement has to fulfill the obligations of the Law

Concerning the Encouragement of Foreign Capital where the Turkish authorities

recognize the capital movement as foreign capital. The final criterion is that there

should be commodity or capital movement as part of the main agreement that the

arbitration relies on.

57 International Arbitration Law No. 4686. This law specifies the Turkish procedure and rules of arbitration if the parties of a contract prefer Turkish Arbitral Rules as the procedure of their arbitral tribunal. This law will also be evaluated in the forthcoming part.

44

The real motive of putting the prerequisite of foreign element into the

application of international commercial arbitration is to limit the preference of the

contracting parties to decide on “international” arbitration. As it was mentioned

above, paragraphs that there is no obstacle to prefer the national arbitration as a

dispute solving mechanism58. Turkey generally does not prefer international

commercial arbitration method in case of a dispute due to mistrust in the

international arbitration institutions’ rules and procedures. Turkish Constitutional

Law Professor Mümtaz Soysal also underlined his mistrust in the international

commercial arbitration on the basis of political concerns. He highlighted the biased

attitude of the international community towards Turkey by giving sample tribunals

that were concluded against Turkey in the European Court of Human Rights59.

Under these circumstances, the administration aimed to limit the application of

international commercial arbitration unless there is a foreign element.

There is no doubt that practical difficulties made a strong impact for not

preferring international commercial arbitration. However, the most significant

motive is the general characteristic of international commercial arbitration

institutions and their rules. It is generally believed that all the rules and procedures

are designed for the protection of investors and capital. Prof. Siam Sunday also

pointed out that: “especially the developing countries do not trust the arbitration

58 The HUMK (Statute on the International Private and Procedural Law) No.516 claims that disputing parties may refer to arbitration whether before or after a dispute arises. 59 Mümtaz Soysal, in his panel speech on “ İdari Şözleşmeler ve Uluslararası Tahkim” on 16 July 1999, Turkish Bar Assosiation, 51

45

institutions, and interpret the arbitration method as a design of the developed and

industrialized states to protect themselves and their citizen’s capital in the

developing world”60. In order to legitimize and make international arbitration

accepted universally, the United Nations has played a significant role. As it was

focused in the Institutions and Models for International Commercial Arbitration Part

of the study, UNCITRAL was introduced as universal rules for arbitration.

It is open to discussion whether Turkey decided to legalize and legitimize

international commercial arbitration by the global liberal economic atmosphere of

the 1990s or international arbitration became a prerequisite for foreign direct

investments. By the year 1999, Turkey adopted international commercial arbitration

in its Constitution as a component of the 1999 Constitutional reform. In the 1999

amendments, in addition to article 125, TGNA also amended articles 47 and 155

which were also contradicting with the application of international commercial

arbitration.

Article 47 of the Constitution was on the Expropriation Policy of the Turkish

State that had been empowering the state to expropriate if a private investment or

facility has a public service feature. Doubtlessly, the application of this article might

be an extraordinary situation such as in case of national security matters. However,

the interpretation of this article was also made by foreign investors such that there

60 Prof. Saim Üstündağ, İstanbul Faculty of Law, Symposium of Reform of Law, (www.izmirbarosu.org.tr/yargıreformu/oturum 64)

46

was the possibility of expropriation of their investments. By the 1999 constitutional

amendment article 47 was revised. Privatization became a constitutional concept and

the confrontation between liberal economic policies on side of privatization of state

enterprises, and the Constitutional Court was abolished.

The other amended part of the same article is that the investments and

services, which were carried out by the state enterprises and institutions (which were

formerly interpreted as public service), might be given as concession and this is

regulated by law61. Yücel Sayman claims that: “by this amendment one of the

constitutional traditions that specified what kind of services were interpreted as

public service was left out”62. Finally, the amendment of Article 47 of the

Constitution also ensures that international commercial arbitration can be preferred

in concession contracts.

There are also foreign investments other than concession agreements. All

investments contain numerous risks including political risk. Especially the investors

and creditor institutions are concerned with political risk63. A senior officer of the

61 The Act Concerning Amendments on Certain Articles of the Constitution of Turkey, No:4446 62 Yücel Sayman, The chair of İzmir Bar Assosiation, The Symposium of Law Reform http:// www.izmirbarosu.org.tr/yargıreformu/oturum 61 63 Political Risk is defined by Paul.E.Comeaux and N.Stephan Kinsala in their book Protecting Foreign Investment Under International Law as the risk faced by an investor if a host country will confiscate all or a portion of the investor’s property rights located in the host country. There are five types of political risk that the authors mentioned expropriation (including confiscation and nationalisation), de facto expropriation, currency risk, risk of political violence and the risk of breach

47

State Planning Organization, Uğur Emek, specified the concept of political risk in an

investment as: “it is basically the unilateral acts decided by host country that limit

the rights of the investors based on the investment agreement”64. The limitations

may include the expropriation of the investment or property, revision of tax laws,

additional responsibilities, transfer of capital and entirely or partially withdrawing

the guarantees for which the state is responsible. Before the amendment concerning

Article 47 was realized, if the administration would have decided on expropriation

of an investment based on the connected article, the Court of State could have not

interpreted the expropriation decision as outside the law65. By adding the clause that

enabled the transfer of the public service as a concession, the problem was

eradicated and relieved concession contracts and international commercial

arbitration. Only then international commercial arbitration became available in the

concession contacts by the amendment of article 125 of the Constitution.

In order to evaluate the reasons for these amendments, expectations as well

as demands of the investors and creditors should be understood. As it was underlined

many times in this study, the primary motive of the investors is to protect their

capital and investment in the host country. However, the status quo in Turkey before

the Constitutional amendment was far from the expectations of the foreign investors.

of contract by the host state. See Paul.E.Comeaux and N.Stephan Kinsala, Protecting Foreign Investment Under International Law, (New York: Oceana Publications Inc. Dobbs Ferry, 1996),3-18 64 Uğur Emek, in his speech on “The Concession Contracts and International Commercial Arbitration” at the Thursday Conferences (Perşembe Toplantıları) of the Regulatory Institution of Competition, 2nd December 1999, www.rekabet.gov.tr/etkinliklerimiz 65 ibid

48

There is no doubt that there were foreign investments in various sectors and with

different models including the B.O.T. Model without the opportunity to solve

investment disputes by international commercial arbitration.

When the decision of the Constitutional Court was made which cancelled the

article 5 of the Law No.3996, and it was decided that all the Build-Operate-Transfer

Projects came under the control and supervision of the Court of State because B.O.T.

agreements were considered as concession agreements. Hence, the parties of the

concession contracts became the administrator and investor and in this way the

administrative law had become applicable. The applicable law specifically became a

drawback for the foreign investors, because the administration could act against the

interest of the investors. That was the political risk of an investment, on the basis of

public interest such as expropriation of the investment. Political risk had impacts

even on the creditors, and rating institutions that evaluate the feasibility of an

investment66. The political uncertainty of a host country also affects the cost of the

investment due to the high level of insurance and risk premiums that are demanded

especially by the creditor.

Through the Constitutional amendments, especially the political and legal

risks were minimized by the ensuring applicability of international commercial

arbitration even for concession agreements. The minimization of political risk can be

66 www.standardpoor.com/resourcecentre/ratingscriteria/corporatefinance/article/energyinfra.htm#legal structure

49

defined as prosecution of administration of its decisions and acts on the bases of a

subjective understanding of public interest67. In this part especially the concession

contracts are focused on, because international commercial arbitration is a

compulsory method for solving the dispute between a host country and foreign

investor(s) if there is bilateral agreement on the encouragement of investment

between two states. In addition to this, the ICSID arbitration became applicable and

its awards are absolute and irrevocable even when the award is against the public

order.

Some of the jurists such as Akıncı have reservations on the amendment of

the Article 125 on the basis of the concept of “foreign element”. He interprets the

purpose of the amendment to encourage investors and eradicate their doubts about

the justice system in case a dispute arises. Akıncı has interpreted the amendment as

enabling the application of Turkish investors to international commercial arbitration

whereupon a dispute arises on the basis of a concession contract68. However, Yılmaz

has comprehended the same amendment in an opposite way concerning the point of

“foreign element” that international commercial arbitration is only applicable when a

“foreign element” is a party to the concession agreement69.

67 Uğur Emek, in his speech on “The Concession Contracts and International Commercial Arbitration” at the Thursday Conferences (Perşembe Toplantıları) of the Regulatory Institution of Competition, 2nd December 1999, www.rekabet.gov.tr/etkinliklerimiz 68 Ziya Akıncı,The Univeristy of Dokuz Eylül. From his paper presented at the Conference on the Judiciary Reform in 2000. http://www.izmirbarosu.org.tr/yargıreformu2000/oturum63.htm 69 Ejder Yılmaz, From his paper presented at the Conference on the Judiciary Reform in 2000. http://www.izmirbarosu.org.tr/yargıreformu2000/oturum62.htm

50

Yılmaz criticized the concept of “foreign element” due to its flexible and

extendable understanding because international commercial arbitration is applicable

even if only one partner of a company, joint venture, and consortium fulfills the

criteria of “foreign element” according to the Turkish laws. Another understanding

of “foreign element” is that if the capital, credit or the guarantee of the investment is

recognized as foreign according to the Law No: 6224, Law Concerning the

Encouragement of Foreign Capital70 then international commercial arbitration

became applicable. In other words, international commercial arbitration became

applicable for Turkish investors if the financing or guarantee for the project is

ensured from another country.

There has been a very concrete experience in the Project Hydroelectric

power plant of Fırtına Valley in Trabzon. The project was designed on the basis of

Build-Operate-Transfer Model, which is a concession agreement. The local court

decided not to recognize the environmental reports that were legitimizing the project

regardless of environmental concerns. The Turkish project-operating firm, BM

Holding had made an international engagement with two foreign firms, ABB and

France de Electric, in order to apply to international commercial arbitration unless

the dispute is solved in line their interests71. However, construction of a

hydroelectric dam on the Fırtına River is still a debate issue that Energy Market

70 Ejder Yılmaz, From his paper presented at the Conference on the Judiciary Reform in 2000. http://www.izmirbarosu.org.tr/yargıreformu2000/oturum62.htm 71 Cumhuriyet 21st July 1999. Although the Constitutional Amendment was not realised in July 1999, the draft of the amendment was signed between the Parties represented in the parliament on 20th July 1999. See also Milliyet 21st July 1999.

51

Regulation Board (Enerji Piyasası Düzenleme Kurulu) did not approve electricity

production license for that area.72

The adaptable concept of “foreign element” was also criticized by Özbilgiç, a

senior officer in Treasury as follows: “the creditor agencies should not be interpreted

as foreign element of the investment. If in a 30 years investment, the repayment of

the foreign loan is made in 5 years, the investor company will protect its right by

applying to international commercial arbitration on the bases of the loan contract”73.

In other words, investor is under the protection of international arbitration only by

ensuring project finance from international financial institutions.

There had been hundreds of foreign investments including concession

agreements, and B.O.T. projects since 1980s. However all contracts were made

under the administrative law whereby international commercial arbitration was not

accessible. Most of the projects are long-term projects, such as dams, highways and

power plants. Therefore most of the projects made in the late 1990s, are still under

construction today. In order to ensure the justice between the project agreements, the

legislature amended the second clause of Article 1 of the Law Regarding

Engagement in Investments and Services on Build-Operate-Transfer Model (Law

No.3996) to enable retroactivity for international commercial arbitration74.

72 www.ntvmsnbc.com.tr/news/382755.asp 73 Zergül Özbilgiç, “Uluslararası Tahkim ve Kamu Hizmeti” Hukuk ve Ekonomi Perspektifinden Uluslararasi Tahkim ve Kamu Hizmeti, ed Ali Ulusoy (Ankara: Liberte, 2001),82 74 Law No.4501 Regarding the applicability of international arbitration in concession contracts. This law aims to ensure coherency between the Constitutional Amendment (Law no.4446) and the Turkish Judiciary System.

52

According to this Law, the concession contract, which was made between the

administration and investor(s) (who has fulfilled the criteria of “foreign element”,

can be revised according to the private law in three months75. By this amendment,

the contracts which were signed before the Constitutional Amendment became equal

to the new concession contracts.

After the enactment of Law No. 4501, the Ministry of Energy and Natural

Resources declared that 117 applications were received until 12th January 2001, for

the revision of formerly made concession agreements76. There has been similar

experiences like the Fırtına Valley power plant that a foreign element has engaged in

concession contracts to benefit from international commercial arbitration.

The last component of the Constitutional Amendment (article 155) was

related with the supervision of the Court of State to all concession contracts. As it

was mentioned, concession contracts were under the supervision of the Court of

State as a part of the administrative law. Through the Constitutional amendment

made by the Law No.4446, the power of supervision, inspection and decision on the

acceptability of the concession contracts had been revised77. The duty of reviewing

the concession contracts of the Court of State has been replaced by the provision that

the Court of State would give its opinion on such agreements within two months.

75 Law No.4501 was enacted on 21st January 2000. 76 http://ntvmsnbc.com/news/63164.asp 77 With the Article 3 of the Law No.4446, article 155 of the Constitution describing the duties of the Court of State (High Administrative Court) has been amended.

53

Although, it seems that there is not a direct relationship between the

applicability of international commercial arbitration and the amendment of Article

155, international commercial arbitration can be applied through the contracts where

the Court of State is responsible for giving opinion on these contracts. The limitation

of the power of the Court of State was criticized by many jurists and academics.

Akıncı underlined the importance of the supervision and control of the contracts by

the Court of State. He claimed that: “the Turkish Judiciary is dismissed from the

control over the contracts and the Executive body of the State, the government,

assumes all the authority over the contracts”78.

Hacaloğlu, a former Minister and MP, also criticized the minimized role of

Court of State in reviewing the concession contracts: “the reason of establishment

of administrative courts is to protect the rights of the citizens. By minimizing the

role of Court of State on administrative contracts, the public interest cannot be

preserved”79.

Concerns over the dismissal of the Court of State from supervision and

control of the administrative contracts are generally based on public interest and the

convenience of the contract vis-à-vis the laws. The İstanbul Bar Association also

criticized this amendment stating that: “the corruption and political acts would

78 Ziya Akıncı, Dokuz Eylül University. From his paper presented at the Conference on the Judiciary Reform in 2000. 79 Algan Hacaloğlu, “Uluslararasi Tahkim ile ilgili olarak Anayasanın 47.,125.,155. Maddelerinde Değisiklik Öngeren Yasa Tasarısı Hakkında Tartışma Notu” www.chp.org.tr/tahkim

54

threaten public interests including misuse of environment, cultural heritage, and

natural resources”80. There is no doubt that all these concerns are based in the

mistrust to the political system in Turkey. The chair of İzmir Bar Association, Yücel

Sayman, put both similar reservations to this amendment by underlining the

importance of the reviewing the contracts for the sake of public interest81.

The raison d'être of the amendment of Article 155 of the Constitution became

significant to evaluate the motives of the Executive Branch. The Court of State was

criticized by the governments because of being inactive and slow while making

revision on the administrative contacts. The other side of this criticism is the étatist

approach of the Court of State to concession agreements. This argument is totally

subjective in the same way that the other judiciary organs, justice, rule of law and

lawfulness are expected from the Court of State as well. However, Balcı criticized

this argument by stating that: “unlike a regular international commercial arbitration

where all the parties are considered as equal, in administrative law the public and

administrative interest are superior to the other parties”82.

The amendment of Article 155 of the Constitution can also be interpreted as

bypassing the Court of State in administrative contracts. Then the question was

80 The press Conference of İstanbul Bar Association, 18th January 2000 81 Yücel Sayman, The chair of İzmir Bar Assosiation, The Symposium of Law Reform http:// www.izmirbarosu.org.tr/yargıreformu/oturum 61 82 Uğur Emek, in his speech on “The Concession Contracts and International Commercial Arbitration” at the Thursday Conferences (Perşembe Toplantıları) of the Regulatory Institution of Competition, 2nd December 1999, www.rekabet.gov.tr/etkinliklerimiz

55

raised as to which institution would carry on the mission of protecting public

interest. The vast and significant projects had already been transferred to control and

goodwill of the bureaucracy and the private investor.

4.2.1 Public Interest and Order

The concept of public interest and order was not described in the Turkish

Constitution and Laws. However this subjective concept is being used as one of the

basis of limiting fundamental rights and freedoms83. The right and freedom of

making a contract is under the protection of the Constitution (Article 48). The parties

of a contract can freely decide on the procedures of the dispute solving mechanism

including international commercial arbitration. However, the subjective concept of

public order and interest may limit the freedom of contract or the enforcement of an

arbitral award. Ertekin and Karakaş describe public order and interest as the rules

and norms which aim to protect society’s social, political, economic, ethical

interests84. Although there are different variations of describing public order and

interest, almost all of them focus on the economic and social benefits of the society.

83 Muharrem Balcı, İhtilafların Çözüm Yolları ve Tahkim (İstanbul: Danışman Yayınları, 1999), 149 Balcı emphases the Article 13 of the Turkish Constitution that states fundamental rights and freedoms can be limited in favour of public interest, ethics and health. 84 Erol Ertekin and İzzet Karataş, Uygulamada İhtiyari Tahkim ve Yabancı Hakem Kararlarının TenfiziTanınması (Ankara: Yetkin Yayınları,1997), 90

56

The linkage between international commercial arbitration and public order

emerges when the enforcement of an arbitral award comes on the agenda of the

national courts. Because on the basis of the New York Convention on the

Recognition and Enforcement of Foreign Arbitral Awards, the Court of First

Instance may decide not to enforce the arbitral award for the sake of public interests.

However, there is not a universal understanding of public interests where all the

international arbitral awards are subject to it. Hence international arbitrators should

also consider the public order and interests while making the arbitral decision

concerning the enforcement of the award85.

There is a biased perception on the administrative law in Turkey whereby the

administrative courts always defend the Turkish State against national and

international investors. Soysal differentiates the understanding of public and state as

follows that: “the public is not equal to state. While protecting interests of the public,

the administrative law and courts consider the protection of every individual of the

society”86.

Before elaborating on the details of the public order issue, the difference

between compulsory international arbitration awards and other foreign arbitral

awards on the basis of enforcement should be clarified. As it was mentioned in the

part where ICSID arbitration was discussed, if there is a bilateral investment

85 Muharrem Balcı, İhtilafların Çözüm Yolları ve Tahkim (İstanbul: Danışman Yayınları, 1999), 156 86 Mümtaz Soysal, in his speech at the Symposium of Administrative Contracts and International Arbitration organised by the Turkish Bar Association on 16th July 1999: 45

57

agreement between two states or a contract which refers to ICSID arbitration

between a host country and foreign investor, the ICSID (International Centre for

Settlement of Investment Disputes) is the institution empowered for arbitration.

Enforcement of the arbitral award is compulsory and irrevocable in the host country

even if the award is against the public order and interest87. There cannot be a

revision of the ICSID award, when declared, by the Secretary of the ICSID, and the

host country has to enforce the award like its national court award.

On the other hand, if another type of international commercial arbitration is

selected by the contracting parties other than ICSID, such as ICC or other ad hoc

arbitration, the local court has the capacity to elaborate whether the award is against

the public order or not. Sayman pointed out that no state gives up its authority and

control of awards made by foreign courts or arbitrators88.

Steward also emphasizes the same point: “the New York Convention

provides that recognition and enforcement of an arbitral award may be refused if the

competent authority in the country where recognition and enforcement is sought

finds that recognition and enforcement of the award would be contrary to the public

policy of that country”89. All these arguments are based on Article 5 of the New

87 Article 54/1 of the ICSID Agreement (http://www.worldbank.org/icsid/basicdoc/basicdoc.htm) . 88 Yücel Sayman, The chair of İzmir Bar Assosiation, The Symposium of Law Reform http:// www.izmirbarosu.org.tr/yargıreformu/oturum 61 89 David P. Stewart, a senior officer at the Department of State of U.S., in “National Enforcement of Arbitral Awards under Treaties and Conventions” in International Arbitration in the 21st Century :

58

York Convention of 1958. Regarding same article of the Convention, Julian D. M.

Lew states that: “Although arbitrators are free and indeed have a duty to investigate

fully the extent of their Jurisdiction, the questions as to their competence become

even more strenuously contested where serious issues of mandatory law or public

policy are involved. An award made in contradiction to or merely ignoring a

mandatory law or public policy could subsequently to be set aside or be

unenforceable”90.

The international legitimacy of annulling the enforcement of an arbitral

award is based on Article 5 (2) of the New York Convention (1958). The domestic

legitimacy of rendered not to enforce international arbitral award is by the

International Private and Procedural Law (MÖHUK). The International Private and

Procedural Law (MÖHUK) generally regulates the private law issues that have a

foreign element such as the foreign commercial arbitral awards. Article 5 of the Law

defines the discrimination of the public order as “if a decision of an authorized

foreign law is clearly discriminating the Turkish public order, that decision is

void”91. Article 45(b) of the Law more specifically annuls international arbitration

awards if the award is discriminating the public order and ethic of the society.

Towards “Judicialization” and Uniformity? Ed. Richard B. Lillich and Charles N. Brower (New York: Transnational Publishers, 1994), 189 90 Julian D.M. Lew, Head of the School of International Arbitration, Centre for Commercial Law Studies, Queen Mary College, University of London “Determination of arbitrators’ Jurisdiction and Public Policy limitations on that Jurisdiction” in Contemporary Problems in International Arbitration ed. Julian D.M. Lew (Laihen: Martinus NiJhoff Publishers 1987), 74 91 Article 5 of the International Private and Procedural Law (MÖHUK), Law No.2675 enacted on 20th May 1982.

59

4.3 The Turkish Laws on the Procedures of the International Commercial

Arbitration

In respect to the hierarchy of laws, after the constitutional amendments the

legislature enacted new laws in order to ensure coherency of laws for international

commercial arbitration. However, there is the International Private and Procedural

Law (MÖHUK) which was enacted in 198292, which also concentrates on the private

law issues that the “foreign element” is involved. Before evaluating the proceedings

of this law as a component of the Turkish Judiciary approach to international

commercial arbitration, there are two new laws on international commercial

arbitration which are presented below.

The first one was enacted in 2000 that aims to identify the rules and norms

which have to be obeyed in case of a dispute in concession contracts93. The second

law was “the Law of International Arbitration” enacted in 2001 is a Turkish version

of the international commercial arbitration, which is the law in force in case of a

dispute. Although, the three Turkish laws which relate international commercial

arbitration have the same capacity, the International Private and Procedural Law

(MÖHUK) is the most comprehensive law when it is compared to the other two

92 International Private and Procedural Law (MÖHUK).Law No.2675, enacted on 20th May 1982 93 Law No.4501, enacted on 21st January 2000, “Kamu Hizmetleri ile İlgili İmtiyaz Şartlaşma ve Sözleşmelerinden Doğan Uyuşmazlıklarda Tahkim Yoluna Başvurulması Gereken İlkelere Dair Kanun”

60

laws. From this point of view, the International Private and Procedural Law are to be

focused before the other laws.

4.3.1 The Statute On The International Private And Procedural Law

(MÖHUK)

The Statute on the International Private and Procedural Law is a very

comprehensive law that covers all conflicting sides of national and international law.

In other words, it describes the relationship between national and international laws

including the application, recognition and enforcement of the foreign courts’ and

arbitrators’ awards. In this part, only the articles related to international arbitration

will be evaluated.

Article 5 of the MÖHUK, which is also considered in the previous part

related to public interest and order, specifies the understanding of discrimination

against public order. According to that article, if the award or decision of the

authorized foreign law definitely violates the Turkish public order, this award or

decision would not be enforced. On the basis of this article, in international

commercial arbitration cases where the parties decide on a foreign arbitration, ad

hoc or institutional, the authorized Court of First Instance may not recognize the

award. However in the case of ICSID arbitration, the Court of First Instance or Court

61

of Cassation cannot question if the award is discriminating against the public order

or not. The award of the ICSID arbitration is binding94.

The second part of the MÖHUK focuses on the recognition and enforcement

of the award made by a foreign court and foreign arbitrators. Article 43 of the

MÖHUK relates to the enforcement of international arbitral awards stating that “the

Court of First Instance can enforce certain arbitral award”. Article 44 describes the

procedures of petition and inspection of the foreign arbitration award in order to

make it recognized and enforced.

After application to the Court of First Instance, the authorized court decides

to whether enforce the decision or not according to the criteria that are described in

Article 38 of the MÖHUK. The first criterion is that there should be a reciprocal

agreement between Turkey and the state where the award is made for the

enforcement of both states’ court decisions. The second criterion is that the foreign

arbitral award is not made on the area of exclusive zone of the Turkish Judiciary. In

other words, the award should be a foreign arbitral award. The third criterion is

again on the violation of public interest. The MÖHUK underlines the importance of

public interest and by article 5 and empowers the Courts of First Instance to nullify

and not recognize the foreign arbitral award by article 38(c). The forth criterion

relates with the procedure of the arbitration that if the defendant side is not invited or

94 Article 53/1 and 54/1 of the Convention of International Centre for Settlement of Investment Disputes

62

informed by the arbitrators to the tribunal and the defendant objected to the award,

the authorized Court of First Instance has the capacity not to enforce the foreign

arbitral award.

Article 40 of the MÖHUK relates to the decision of enforcement of the

Turkish Courts. This article empowers the Courts to enforce the entire foreign

arbitral award or just a part of it. The article is a critical one indeed because a foreign

arbitral award can be recognized by the authorized court but the court may enforce a

limited part of the award. Article 41 of the MÖHUK is on the procedure of

appealing the award to the Court of Cassation. The foreign arbitral awards, except

the award made by the ICSID, can be appealed by the parties of arbitration.

The last article of the MÖHUK, Article 45 describes the reasons of not

enforcing foreign arbitral awards by the Court of First Instance. The first reason of

not enforcing the award is that if there is not an arbitration clause in the contract or a

separate arbitration contract between the parties of the main contract that makes

reference to the details of the arbitration, then the award cannot be enforced. The

second reason is also related to the public order. If the authorized court interprets

foreign arbitral award is against the public order, it may reject to enforce the award.

The third reason for not enforcing the award is that if the subject matter of the

arbitration cannot be resolved by arbitration according to the Turkish law. The

fourth reason relates to the procedure of arbitration that if one of the parties is not

63

invited to the arbitration tribunal and objects to the arbitral award, this foreign award

can not be enforced by the Turkish Courts.

The fifth reason is also related to the procedure of arbitration in that if one

party is not informed during the selection of arbitrators, the enforcement of the

award cannot be realized by the court. The sixth reason relates to the arbitration

contract in that when the contract is invalid according to the law and procedure of

the place where the contract is made. The seventh reason that if the selection of the

arbitrators or the procedures which is being used by the arbitrators is against the

arbitration contract, the foreign arbitral award is invalid and cannot be enforced. The

following reason is on the award that is made by the arbitrators that if the scope of

the award exceeds the scope of the arbitration contract, the award cannot be

enforced. The final reason not to enforce the foreign arbitral award according to the

MÖHUK is that if the award is not certain or is cancelled by the authorized

institution; the arbitral award again cannot be enforced95.

The MÖHUK is a very comprehensive law that consists of all the variations

and relations of national and international law. It especially concentrates on private

law issues that includes “foreign element”. In other words the rules and norms of the

MÖHUK relating to international commercial arbitration are applicable where the

parties of the contract are private persons or entities.

95 See Ata Sakmar, Nuray Ekşi and İlhan Yılmaz, “Milletlerarası Özel Hukuk ve Usul Hukuku Hakkında Kanun –Mahkeme Kararları” (İstanbul: Beta Yayım Dağıtım, 1999)

64

After the constitutional amendments that enable international commercial

arbitration in concession contracts and investment agreements made between a

private entity with a “foreign element” and the Turkish state, a new regulation was

required to determine of the special procedures of international arbitration in

concession contracts. In this respect, Law No.4501 was enacted in 2000 by the

legislation that defines the principles that shall be followed if international

commercial arbitration is decided.

4.3.2 The Law on the Procedures of Application of International Arbitration

in Administrative Concession Contracts (Law No.4501)

This law concentrates only on the procedures and principles of making an

international commercial arbitration agreement between a private entity with a

“foreign element” and the administration on a subject matter of the concession

agreement. Although this law is not retroactive, for the projects and investments

which started before enactment this law, the temporary article 1 of the Law No 4501

enabled the retroactivity of the law if the authorized company would apply to the

Council of Ministers. The concession contract could have been revised and

international commercial arbitration become available96.

96 Ergin Nomer, Nuray Ekşi, Günseli Gelgel, Milletlerarası Tahkim, (İstanbul: Beta Yayım Dağıtım, 2000), 89

65

Article 2 of the Law enables both ad hoc and institutional arbitration for

disputes related to concession agreements. The same article also underlines the

condition of foreign element as prerequisite of applying international commercial

arbitration in concession contracts. Article 3 of the Law also accepts that disputes

that arise from concession can be resolved by an arbitration based on Turkish Law in

Turkey, or by foreign law abroad or by an international institution such as the ICC.

Article 5 of the Law is on the recognition, enforcement and appeals arbitral award.

The recognition and enforcement of the awards are made by the Courts of First

Instance and appeal is made by the Court of Cassation. However, this article was

cancelled by the International Arbitration Law (Law No.4686) as will be discussed

in the next section.

After ensuring the coherency between the Constitutional amendments and

the Turkish law on the applicability of international commercial arbitration in

concession contracts, Turkish legislation enacted the International Arbitration Law

on 21st June 200197.

4.3.3 The International Arbitration Law, (Law No.4686)

Elber interpreted the International Arbitration Law as one that benefits

foreign investors enabling them to shorten the resolution time of their disputes and

97 Law No. 4686, International Arbitration Law (Milletlerarası Tahkim Kanunu)

66

prevent-within limits-the intervention of state courts98. This shows a fundamental

difference with the MÖHUK and Law No.4501 on the application of the

international commercial arbitration in concession contracts. The difference is

described in the first article of the law that this law is applicable when the parties of

a commercial contract, bearing a foreign element or not, decide on this arbitration

law as the procedure of the arbitral tribunal. In other words, Turkish legislation has

created alternative arbitration rules, procedures and regulation other than the foreign

rules. The concept of foreign element is not compulsory as it is in the MÖHUK and

Law on the Concession contracts. But if one of the parties bears the foreign element

that was described above, then the arbitration becomes an “international”

commercial arbitration.

This law describes the definition, scope, procedures and rules from the

beginning of arbitral tribunal to the end of the enforcement of the arbitral award.

There are also many references from the MÖHUK and Law on concession contracts

(Law No.4501) such as the sensitive issue of public order.

After the Constitutional amendment, the Ecevit Government in 1999

proposed a draft law considering some amendments to the Law of Court of State to

the Parliamentary Commission of Justice. According to this draft law, without

enacting a law on the applicability of international commercial arbitration in case of

98 Nazan Candaner Elver, “Turkish International Arbitration Law and Restrictions on its Application” Journal of International Arbitration 21(5), 454

67

a dispute based on a concession contract, all the concession contracts signed after 1st

January 1998, can be brought to international commercial arbitration if the parties of

the contract agreed to it99. However this draft was rejected by the Commission of

Justice because this provision covers the cases which were held by the Court of

State. Ramazan Toprak, former Member of the Parliament (MP), criticized this

governmental proposal stating that “the retroactive applicability of international

commercial arbitration on concession contracts is open to doubt because the Court of

State has been inquiring whether the concession contracts are appropriate or not”100.

Although the “retroactivity” clause had been rejected by the Commission, it was

enacted by the Law No.4501.

During discussions on the International Arbitration Law in the Parliament,

the majority of the MPs supported the draft Law considering it as the vital

instrument for the encouragement of foreign capital. Despite the common tendency

to support the draft of International Arbitration Law, most of the criticisms were

made on similar issues on the definition of “foreign element” and protection of

public order. On the compulsory element of international arbitration, MP Ramazan

Toprak criticized the broad and flexible understanding of “foreign element”. He has

underlined that a credit agreement or reference letter printed by a foreign bank or

financial institution should not be describing the foreign element of a contract”101.

99 Draft Law No.577, proposed in 1999. 100 Turkish Grand National Assembly Minutes, 21-3rd Legislation Year, 122nd Meeting, 21st June 2001 101 Ibid.

68

Another MP, Veysel Candan stressed the danger of misbehaves of the Turkish

investors by making fake agreements with foreigners in order to have the right of

applying to international arbitration in concession contracts.

The other issue that was emphasized by the MPs was the protection of public

interests. MP Mehmet Zeki Çelik criticized the international commercial arbitration

for concession contracts and claimed that “there is no inspection or supervision of

state organs on the contracts where long-term concessions are given”102.

Consequently, the International Arbitration Law was enacted in 21st June

2001 with a majority where opposition parties were also involved. The period of

legalizing and recognizing the international commercial arbitration in the Turkish

Judiciary System especially for the concession contracts began with the

Constitutional amendments and resulted in the International Arbitration Law.

As related to the retroactivity of the Law, the Turkish Court Cassation (TCC)

played a significant role which limited the application of the International

Arbitration Law. Elver identified the TCC decisions on the retroactivity of the Law.

In brief, from the perspective of the TCC, the International Arbitrational Law does

not apply to contracts signed before the enactment of the Law. Elver comment on

from the TCC decision that:

At the execution date of the commercial contract or the arbitration date, the TIAL (Turkish International Arbitration Law) was not in force hence it is not

102 Ibid.

69

possible to foresee the consensus of the contractual parties on the application of a non-existing law. Hence, the law adopted after the execution date of the contract by the parties or the preparation of the arbitration clause, shall not be applied to the dispute of the contractual parties.103 Considering the perspective of the TCC and Turkish legal principle of non-

retroactivity of laws, there has been problems of application for the International

Arbitration Law. Elver argues that: ‘Turkish International Arbitration Law should

have an immediate and even retroactive effect on all arbitration proceedings and

apply to all disputes that fall within its remit, even if those disputes are related to

contractual rights and obligations that arose before the date it entered into force’104.

As final remarks related to the position of international arbitration in Turkish

regulatory framework, after the enforcement of the International Arbitration Law,

the applicability of the international arbitration was stressed in the new Foreign

Direct Investment Law (Law No. 4875). Article 3(e) states that for the settlement of

disputes which arise from investment agreements subject to private law and

contracts made with the administration under which concessions concerning public

services are granted, foreign investor can apply, beside the authorized local courts,

to national or international arbitration, or other means of dispute settlement,

provided that the conditions in the related regulations are fulfilled and the parties

agree thereon.

103 Nazan Candaner Elver “Turkish International Arbitration law and Restrictions on its Arbitration” Journal of International Arbitration 21(5), 456 104 Ibid

70

CHAPTER V

CONCLUSION

International Commercial Arbitration became an alternative dispute solving

mechanism for international business disputes in the 21st Century. The international

efforts and initiatives considering the acceptance and recognition of international

commercial arbitration had begun in the 1920s. However, the atmosphere of the

World Wars disabled the development of international business and consequently

acceptance of the concept of international commercial arbitration especially by the

Third World states. Because the concept of international commercial arbitration has

been considered as contemporary capitulations due to delegation of sovereign right

of jurisdiction to international institutions or rules. As it is known, since the 17th

century, the Ottoman Empire gave legal, commercial concessions to foreigners

which foreign nationals were bound with their national laws despite residing in the

Ottoman territory.

Capitulations had also ensured concessions and privileges to the nationals of

other states but these privileges were under diplomatic protectionism. The limits of

diplomatic protectionism on commercial interests could have stretch to military

71

interventions such as the war between France and Mexico in 1861 based on unpaid

credit. There is no doubt that there is not any military confrontation based on

commercial disputes at the present time. However there are different variations of

diplomatic and economic sanctions over some states caused by commercial interests.

Enron, an American energy giant company, has been facing having disputes on its

power plant investment in India where the Indian government expropriates some of

the properties of Enron in India. Kenneth Lay, the Enron Chairman, said in an

interview with the Financial Times that: “There are U.S. Laws that could prevent the

U.S. government from providing any aid or assistance or other things to India going

forward if, in fact they expropriate property of U.S. companies”.105 Despite al

bullying tactics, by 2005 Enron was discredited by internal scandals in the U.S.A.

The liberalization of international capital and the collapse of socialist

regimes have been driving the developing states to restructure and privatize state-

owned enterprises. A market economy needs a legal system to define and protect the

rights of both national and international investors against unjust competition and

jurisdiction. On the legal side, international commercial arbitration re-emerged in the

last quarter of the 20th Century as the way of protecting commercial interests of

international investors. In commercial arbitration where the parties of the arbitration

are private entities, there is consent and acceptance of the parties to apply the

arbitration method as a dispute solving mechanism. However, in investment projects

and concession agreements where foreign investors and state are the parties of the

105 24th August 2001, i “Enron warns India over possibility of sanctions” Financial Times

72

dispute, applicability of international commercial arbitration becomes questionable

because one of the parties is a sovereign entity.

From the international creditor or foreign investor perspective, the main

objective is the protection of their capital, property and rights gained by the

investment agreement. An investment such as the B.O.T. model or a concession

agreement is not evaluated just considering financial feasibility. As it was mentioned

above most of the international credit rating agencies consider the legal and political

risks of the investments. In this respect, the applicability of international commercial

arbitration is one of the significant criteria for international creditors in case of a

dispute arises out of an investment.

There is no doubt that enforcement of foreign arbitral verdicts is also

important as the applicability of arbitration. The international legitimacy of

enforcement of foreign arbitral awards is based on the New York Convention of

1958. The Convention determined conditions of enforcement and legal basis of not

enforcing the awards including the sensitivity on public order. However, as one of

the international mainstay of international commercial arbitration, the ICSID

Arbitral award is binding and irrevocable for the parties even if the award

contradicts the public order and interest.

73

The national legitimacy of applying to international commercial arbitration is

based on the international treaties and the Constitutional amendments. By the 1999

Turkish Constitutional amendments, the legislation changed article 155 of the

Constitution over the statute of administrative concession agreements, which were

subject to the review of the Court of State. The other amended article, article 125,

legislation enabled international commercial arbitration on disputes arising out of

concession agreements regarding public services. There has been the law of

MÖHUK (International Private and Procedural Law) that describes the proceedings

and rules of recognition and enforcement of the foreign arbitral award where the

parties are private entities.

In 2000 the Turkish Grand National Assembly enacted the Law No. 4501

concerning the rules and proceedings for applying international commercial

arbitration in disputes that arise out of a concession agreement in order to ensure

coherency between the amended articles of the Constitution and laws. The final all,

establishing the international arbitration regulatory framework in the Turkish

Judicial System is the International Arbitration Law enacted in 2001. This law is

based on the general characteristics of the UNCITRAL rules.

The factors that encouraged Turkey to accept international commercial

arbitration and delegate some of its judicial sovereign rights for investment and

concession agreements were various. As a developing country, Turkey has to sustain

74

its development by investing on infrastructure, such as on power plants and

highways. However, these investments require vast amounts of capital and sound

projects. Like the other developing countries Turkey has been trying to encourage

foreign investments to have the projects financed, increase tax revenues and rate of

employment. In this respect, the international commercial arbitration was

introduced as one of the prerequisites for attracting foreign capital and investment.

Some scholars, jurists, politicians and labour union leaders have been

criticizing international commercial arbitration about administrative concession

contracts. Their basic concerns are the protection of the public order and interests.

Mümtaz Soysal, also underlined the importance of public order and interests and

notified the increasing hegemony of the international investors and multinationals on

partner countries, particularly in regard to investment contracts.106 Mistrust towards

the politicians and bureaucrats provoke reservations on international commercial

arbitration. The other criticism is on the broad understanding of “foreign element” as

a prerequisite for applying to international arbitration. This issue had been discussed

while the International Commercial Arbitration Law was on the agenda of the

TGNA. Reservations were about the possibility that even a letter of guarantee can be

interpreted as a foreign element of the investment dispute.

106 Mümtaz Soysal, in his speech at the Symposium of Administrative Contracts and International Arbitration organised by the Turkish Bar Association on 16th July 1999

75

In order to draw a conclusion on the issue of applicability of international

commercial arbitration while satisfying the interests of both the administration and

international investors, a few of recommendations are proposed below. Firstly, the

public interests and order such as the protection of fair competition and environment

should be determined as not arbitrable issues in the main investment or concession

agreement in order to minimize the risk of conflict between parties. Secondly, due to

the limited capacity of reviewing the contracts by the Court of State, the agreements

should be made by the specialists of the subject. Thirdly, by accepting the role and

importance of the international commercial arbitration as a one of the prerequisites

of foreign investment, internationally recognized institutions on international

commercial arbitration should be established as an alternative for the hinterland of

Turkey. In this framework, international commercial arbitration would play a

significant role for attracting foreign capital by satisfying the concerns of both

parties. All of the above presumes goodwill and excludes greed.

76

SELECT BIBLIOGRAPHY:

A. Books:

BALCI Muharrem, İhtilafların Çözüm Yolları ve Tahkim (İstanbul: Danışman

Yayınları, 1999) COMEAUX Paul E. and KINSELLA N. Stephan, “Protecting Foreign Investment

Under International Law” (New York : Oceana Publications Inc., 1997) CAHIER Philippe, “The Strengths and Weaknesses of International Arbitration

involving a State as a Part” ”“Contemporary Problems in International Arbitration Julian D.M. Lew (Martinus NiJhoff Publishers, 1987)

DELAUME Georges R., “Sovereign Immunity and Transnational Arbitration”

Contemporary Problems in International Arbitration ed. Julian D.M. Lew (Leiden: Martinus NiJhoff Publishers,1987)

ERTEKİN Erol and KARATAŞ İzzet, Uygulamada İhtiyari Tahkim ve Yabancı

Hakem Kararlarının TenfiziTanınması (Ankara: Yetkin Yayınları,1997)

HOUTTE Hans Van, The Law of International Trade (London: Sweet & Maxwell, 1995)

HOLTZMANN Howard M., “Balancing the Need For Certainty And Flexibility In

International Arbitration Procedures” in ed. Richard B. Lillich and Charles N. Brower “International Arbitration In the 21st Century: Towards “Jurisdiction and Uniformity” (New York: Transnational Publishers, Inc,1994),

LEW Julian D.M., “Determination of arbitrators’ Jurisdiction and Public Policy

limitations on that Jurisdiction” in Contemporary Problems in International Arbitration ed. Julian D.M. Lew (Laihen: Martinus NiJhoff Publishers 1987)

NOMER Ergin, EKŞİ Nuray, GELGEL Günseli, Milletlerarası Tahkim, (İstanbul:

Beta Yayım Dağıtım, 2000) ÖZBİLGİÇ Zergül, “Uluslararası Tahkim ve Kamu Hizmeti” Hukuk ve Ekonomi

Perspektifinden Uluslararasi Tahkim ve Kamu Hizmeti, ed Ali Ulusoy (Ankara: Liberte, 2001)

77

PAULSONN Jan, “Dispute Resolution” Economic Development, Foreign Investment and the Law ed. Robert Pritchard (London: Kluwer Law International and International Bar Association, 1996)

SAKMAR Ata, EKŞİ Nuray and YILMAZ İlhan, “Milletlerarası Özel Hukuk ve

Usul Hukuku Hakkında Kanun –Mahkeme Kararları” (İstanbul: Beta Yayım Dağıtım, 1999)

STEWART David P., in “National Enforcement of Arbitral Awards under Treaties and Conventions” International Arbitration in the 21st Century : Towards Judicialization and Uniformity? Ed. Richard B. Lillich and Charles N. Brower (New York: Transnational Publishers, 1994)

SHAW M.N., “International Law”, (New York: Grotius Publications Cambridge

University Press 1991)

B. Articles: ELVER CANDANER Nazan, “Turkish International Arbitration Law and

Restrictions on its Applications” Journal of International Arbitration 21(5) MICHALCHUK Daniel J., “Filling a Legal Vacuum: The Form and Content of

Russia’s Future State Immunity Law Suggestions For Legislative Reform” Law and Policy in International Business Vol: 32 No: 3 (Spring 2001)

SHIHATA Ibrahim F.I. and PARRA Antonio R., “The Experience of the

International Centre for Settlement of Investment Disputes” Foreign Investment Law Journal 14:2 (Fall 1999)

SHIHATA Ibrahim F.I., “Factors Influencing the Flow of Foreign Investment and

the Relevance of a Multilateral Investment Guaranty Scheme” 21 International Law (1987)

SHIHATA Ibrahim F.I. and PARRA Antonio R., “Applicable Substantive Law in

Disputes Between States and Private Foreign Parties: The Case of Arbitration under the ICSID Convention” ICSID Rev- For Investment Law Journal 10 (1994)

C. Seminar Speeches

78

AKINCI Ziya, Dokuz Eylül University. From his paper presented at the Conference on the Judiciary Reform in 2000. http://www.izmirbarosu.org.tr/yargıreformu2000/oturum63.htm

BEHRENS Peter, “Arbitration as an Instrument of Conflict Resolution in

International Trade: Its Basis and Limits” Symposium on the Conflict Resolution in International Trade,( Nomos Verlagsgesellscchaft Baden-Baden, 1993)

ERSÜMER Cumhur, Minister of Energy and Natural Resources, in his speech at the

Conference on “Gas and Energy in Turkey” in İzmir on 22nd September 1999.

http://www.byegm.gov.tr/yayyinlarimiz/TURKHABER/1999/28Eylul/T2htm EMEK Uğur, in his speech on “The Concession Contracts and International

Commercial Arbitration” at the Thursday Conferences (Perşembe Toplantıları) of the Regulatory Institution of Competition, 2nd December 1999

www.rekabet.gov.tr/etkinliklerimiz SOYSAL Mümtaz, in his panel speech on “İdari Şözleşmeler ve Uluslararası

Tahkim” on 16 July 1999, Turkish Bar Association SAYMAN Yücel, The chair of İzmir Bar Assosiation, The Symposium of Law

Reform www.izmirbarosu.org.tr/yargıreformu/oturum61 ŞANLI Cemal, in his panel speech on “ İdari Şözleşmeler ve Uluslararası Tahkim”

on 16 July 1999, Turkish Bar Association ÜSTÜNDAĞ Saim, İstanbul Faculty of Law, Symposium of Reform of Law

(www.izmirbarosu.org.tr/yargirformu/oturum64 ) YILMAZ Ejder, From his paper presented at the Conference on the Judiciary

Reform in 2000. http://www.izmirbarosu.org.tr/yargıreformu2000/oturum62.htm

D. Online Documents CRAIG W. Laurence , Trends and Developments in the Laws and Practice of

International Arbitration www.coudert.com/practice/intcom.htm

79

HACALOĞLU Algan, “Uluslararasi Tahkim ile ilgili olarak Anayasanın 47.,125.,155. Maddelerinde Değisiklik Öngeren Yasa Tasarısı Hakkında Tartışma Notu”

www.chp.org.tr/tahkim HILL Richard, “Primer on International Arbitration”, July 1995 (http://www.batnet.com/oikoumene/arbprim.html ) ICC-International Chamber Of Commerce Arbitration Rules (adopted to take effect

from 1 January 1998) http://www.icc.org STANDARD & POOR Corporate Finance Rating Criteria www.standardpoor.com/resourcecentre/ratingscriteria/corporatefinance/articl

e/energyinfra.htm UNCITRAL Rules (http://www.uncitral.org/uncitral/index.html)

E. Newspaper

24th August 2001, “Enron warns India over possibility of sanctions” Financial Times